Global Economy Briefs

6 Things CEOs Must Demand From Washington In 2020

October 08, 2019

Increasingly, the national conversation is focusing on capitalism and its track record. As part of this debate, critics are targeting the public faces of the free market: America’s CEOs. That’s a pity—and a serious potential loss for the nation.

America’s CEOs are among the most pragmatic, effective problem-solvers we have as a country. If business leaders sit on the sidelines in this turbulent time or offer weak or self-serving solutions, the U.S. will have lost a crucial source for some of its best potential ideas. America can only have a future even brighter than its storied past if business leaders take the risk of entering the public square to make the case for sound public policy in the nation’s interest. We have a responsibility to the country to engage, not retreat, in this political season.

It starts with an understanding that the free market has been the greatest engine for generating prosperity in history. Capitalism has raised living standards and lifted more people out of poverty than any other economic system. Like any system, it is not perfect. Capitalism is an organic system that must morph over time to adjust to societal changes and demands. Business leaders must lead the change so that societal frustration with its shortcomings does not overtake its powerful benefits. We can start by running our companies balancing the roles of multiple stakeholders in creating long-term value. We can remember these stakeholders by our title, CEO: Customers, Employees and Owners.

That’s only the beginning, though. Despite obvious personal and political differences among chief executives (we are human, after all), there are six issues we all can—and must—rally around and champion in the election season ahead:

Fight Crony Capitalism

From regulatory loopholes to tax carveouts to other preferential treatments, crony capitalism diminishes the performance, reputation and public image of our free-market system. CEOs must not practice but instead battle cronyism if capitalism is to survive.

For the economy to function at its best, business and government need to interact to craft policies for the nation’s best interest—for regulation, taxes and trade, especially. Free and open markets ideally yield the best outcomes. But sometimes it is necessary for government intervention to level the playing field and protect the participants. Such intervention may not evenly benefit every interest, but it must benefit society as a whole, and the benefits must outweigh the costs.

Crony capitalism is a government intervention or “deal” unjustified by a market failure and benefiting a narrow private interest. The federal government, for instance, shields domestic sugar producers from foreign competitors through import tariffs, quotas and other means. As a result, U.S. consumers and businesses that use sugar pay about twice the global price. Another example: Under the Jones Act, vessels transporting cargo between U.S. ports must be built in America and staffed by American crew. These rules insulate the maritime industry from international competition but, to society’s loss, increase costs and decrease commerce.

Such arrangements are not “pro-market” policies and are widespread. They inefficiently allocate society’s resources, which in turn yields less value and innovation. If enough participants in the global business community view America’s economic climate as skewed with favoritism, they will invest their capital elsewhere. The country’s competitive advantage will take a hit­—and with it, the prosperity of businesses as well as that of consumers. And, most importantly, societal trust in capitalism will erode.

Business executives should explain why Washington must change its ways. Among other steps, they can push for further tax and regulatory reforms that diminish special interest power and allow the best ideas to prevail in a free marketplace. Business leaders also must lead by example and reject crony deals, making the case against favoritism so strongly that our society adopts an ingrained aversion to it.

Without a concerted effort by the business and policy communities, crony capitalism will continue being the rotten apple that spoils the entire bushel by turning people off of even legitimate free-market forces.

Increase Opportunity for All

Inequality is top of mind for many these days. Most solutions call for free everything paid for by enormous tax increases or redistribution of wealth.

Following World War II, the U.S. economy enjoyed a quarter century of extraordinary growth, which fed broad-based prosperity. The proverbial rising tide really did lift all boats. But since the 1970s, growth generally has slowed while inequality generally has grown. The 2008 financial crisis exacerbated the issue.

But let’s be careful. If inequality is defined by identical outcomes, then it leads to policies of redistribution. If inequality is defined by equal opportunity, then we can focus on policies to level the playing field while allowing for the dynamics of free market incentives to work. We need to incent people to work hard, to save, to invest capital and to take risk in order to drive innovation in society. The ability to benefit from the fruits of one’s labor is the engine of creativity, innovation and economic growth. It is what has created an economy in the U.S. that is the envy of the world.

The system can and should generate more prosperity for more people. And to that end, the nation’s CEOs must help more Americans climb the economic ladder. Sustaining capitalism requires an America in which everyone has a fair chance. Trying to enforce equality through outcome-driven tax- and command-based redistribution schemes would stifle growth and innovation, leading to less wealth all around. True equality of opportunity would preserve and leverage free-market forces, expanding them down to every rung of the economic ladder.

One of the primary ways we can drive equal opportunity is to improve access to and quality of the nation’s education system.

Improve U.S. Education

Education is the key that unlocks robust opportunity in a healthy, dynamic capitalist system. It provides the tools for access to rewarding careers.

A stronger educational system would raise incomes for all and make communities and the companies within them more competitive. CEOs should champion reform across the education spectrum, from early childhood to K-12 to postsecondary education, and mid-career workforce development. Given that business is the ultimate consumer of education, CEOs are well positioned to make this case.

Consider early learning: Countless studies have demonstrated that children who get a strong start go on to lead healthier, more prosperous lives; this, in turn, improves the competitiveness of the nation’s workforce and its prosperity—an everybody-wins outcome that executives should explain to both policymakers and the public. Business can strengthen society and the sustainability of capitalism by calling for increased availability of high-quality early learning, particularly for children at greatest risk.

On the K-12 front, students are graduating from high school at a higher rate than ever before, but graduation rates are an inadequate measure of learning. Most public high school graduates’ reading and math skills, for instance, fall short of what they need in college or the workplace. Executives should explain that improving real outcomes would require boosting student readiness, improving teacher quality and raising the quality of what is taught.

Then there are post-secondary education and workforce development, the realm in which business has the most direct, immediate impact. Companies should advocate improving needed skills rather than simply increasing the number of post-secondary degrees awarded. Businesses should form alliances with higher education institutions. For example, FedEx partners with Western Governors University, which teaches through online, competency-based education. There, employees are rated according to their mastery of new skills rather than how much time they spend in the learning process. This can accelerate completion while enhancing learning.

Businesses can do only so much on their own, however. CEOs should urge public decision-makers to fund postsecondary education, training and retraining for America’s most disadvantaged individuals, including those who have lost their jobs due to global competition. They also should advocate dismantling regulatory barriers and disincentives to innovation in workforce development—for example, eliminating rules that make it difficult for students to obtain federal loan aid for programs that are not based on credit hours.

The good news, as mentioned above, is that some in the business community already are advocating policy reforms, enacting programs and forming partnerships. More companies should follow suit. Moreover, taking such actions would situate executives well to enter the public square and advocate for sustaining capitalism and equality of opportunity with conviction, backed by the confidence of practicing what they preach.

Focus On Fiscal Health

As the federal debt and the interest on it rise rapidly, they divert our nation’s economic resources from more productivity-increasing, opportunity-boosting investments—both private and public. If left unaddressed, this mushrooming national debt increasingly will diminish opportunity for all, particularly for the younger generations who ultimately will be saddled with financing it.

Business leaders know from close observation and experience that debt must be serviced, and that trust lost in the financial markets is hard to regain. Our nation, irrespective of ideology, has become inured to exponentially growing debt, apparently believing that “it can’t happen here.” It is never pleasant to deliver bad news; but the business community is the best equipped in this difficult time to do it. The nation must re-attain stable and sustainable finances, or it will meet an existential moment for capitalism; and the alternative is almost unthinkable.

The nation faces dramatic demographic changes with the baby-boom generation retiring and birth rates falling below replacement rates. We will have fewer workers to support more retirees for years to come. Washington must hold down spending, but there are limits to feasible spending restraint because of the cost of an aging population. But the federal Treasury will need even more revenue to achieve its expansive visions. Business executives must explain that the nation needs a tax system that is internationally competitive, incentive-efficient and revenue-sufficient. We also need an immigration policy that fills the needed labor and skill-set gaps.

Many Americans believe that the nation’s fiscal problems center on Social Security. Business leaders need to explain that though there is a Social Security challenge, the real problem lies in the exploding costs of healthcare.

Defuse The HealthCare Bomb

Rising healthcare costs, which have far outpaced overall inflation, require continually higher insurance premiums that challenge family budgets, business budgets and the federal budget. Households do not fully understand how their employers’ struggle with rising health costs has caused the stagnant wage growth for which CEOs—and capitalism itself—often bear unfair public criticism. If capitalism is to regain public trust or even to survive, health costs must be brought under control.

The clear public impulse is to make healthcare free, at the expense of the already bare federal Treasury. Instead, business leaders must harness capitalism’s free market incentives to ensure that all Americans have access to quality, affordable care. A bipartisan approach to fixing the Affordable Care Act’s (and Medicare’s) problems could start by offering all households single-purpose refundable tax credits for purchasing insurance.

Doing so would take the best ideas from both political sides: greater access as an American value and more competition to drive affordability and efficiency. If the tax credits covered the cost of comprehensive but low-priced plans, driven by consumer choice and value in the marketplace, then every consumer would have access to quality care. Those who want higher-priced plans would be responsible for the incremental cost. In this way, every provider and every plan would be motivated by market incentive to deliver true value: high quality at low cost.

Removing ineffective regulations would also lower the cost of care. For example, efficient plans must be able to market across state lines. A natural market for affordable care may only occur within a particular part of a state rather than statewide. For that reason, plans must be allowed to price locally, where the cost of doing business varies from, say, an affluent city to a more rural area. Allowing the broader insurance market to operate in metropolitan areas that cross state lines would further boost competition.

These ideas are by no means a cure-all. Healthcare costs have grown so large and are growing so fast that if the nation cannot achieve greater value at a lower price tag, all public and private budgets will explode. But sustaining capitalism through competition in healthcare just makes sense, and CEOs can champion such policy innovation.

Get Smarter On Trade

At the moment, politics dominates the conversation, which often includes mischaracterizations of trade—especially the corrosive notion that it’s a zero-sum game, in which one country’s benefit must come at the expense of another. Business leaders should make the case that open but fair trade policies would generate more prosperity for more people than protectionism. Moreover, a pro-trade message with broad appeal must also acknowledge those harmed by trade and address their hardships.

Trade makes America more competitive and provides its citizens with higher living standards. The typical consumer derives nearly one-third of his or her purchasing power from trade. And lower-income consumers arguably are the biggest beneficiaries because trade makes more goods more affordable. Make no mistake: open trade creates higher living standards.

But business leaders must advocate for modernization and equalization of trade agreements. While trade benefits America as a whole, it has diminished or eliminated entirely the paychecks of some workers. Such hardships do not mean that the U.S. should preserve existing jobs artificially by protecting them from globalization and technological change that proceeds around the world. Doing so would prevent competition from driving the economy forward, which would allow other nations to take the lead and make America poorer and less competitive. Rather, the dislocations from trade should compel public policies to better soften the blow and help those individuals access prosperity.

To that end, business leaders should press for a national policy for economic adjustment beyond the current Trade Adjustment Assistance system. It should be available to all workers experiencing involuntary unemployment for reasons other than their own conduct.

Such a program would create incentives for returning to work. It could include wage insurance, which would pay workers a fraction of any income loss associated with a new job, regardless of the reason for the unemployment, for a two-year period following the initial job loss. It should include health insurance, too­—and not confront individuals with a choice between an available but lower-paying job, and unemployment with health insurance. It should also include a greater commitment to job-search assistance and training in new skills. Many such benefits are now available under restricted circumstances but should be universal.

CEOs can rise above the political mudslinging that seems to dominate this issue by pushing a program of fair trade paired with strong policies for helping those hurt in the process. Doing so would help the public understand that the common good and good business practices are not only compatible but also mutually necessary.

And So…

Shared values, including a belief in capitalism, long have pulled our country together. Now, economic insecurity and fear, including distrust of capitalism, are pulling it apart. Fewer than half of America’s millennials, for example, see capitalism in a positive light. That generation will someday take the reins of the U.S. economy, and thus their skepticism should ring alarm bells for any CEO wanting to sustain the American system. U.S. executives have the skills and experience to unite all Americans by making the case for sustaining capitalism—and the nation.

This essay was initially published by Chief Executive