Our economic system is not only in transition from its neoliberal moorings to some new, still to be determined, order but it’s also in crisis. The economy now functions without some of the redeeming attributes that both liberals and conservatives came to like in capitalism. Others would argue that the present economic system is the natural outgrowth of capitalism. The fact is that when one reads about our economic system more often than not runs into characterizations like plutocratic, greedy, extractive, exploitive, technocratic, oligarchic, feudal, unequal. Less often we see attributes like fairness or serving society at large as descriptors of the present system. Thus, the voices suggesting that we should rethink how the economic system ought to work are getting more and louder. Surveys show that especially among young Americans favorable views of capitalism have declined.
Why this discontent? Well, the overarching reason is that capitalism as practiced over the last 40 years has not delivered shared prosperity and economic security at a level that matches the expectations of the majority of Americans. So, we can ask why is this? I am inclined to propose two explanations which are interrelated. One is that our current economic system is unhinged from its basic goal of serving the common good. The second explanation I have is that this system is also unhinged from any effective mechanism of checks and balances. Actually, the second state of affairs is what keeps our economic system to veer farther and farther away from the goal of serving the interests of society.
The irony is that we don’t hear businesspeople, politicians, or common people suggest that the economic system should not serve the common good. The advocates of the way the economy works would actually argue that the system does exactly that. They will say that the market system allows everybody to reveal his/her preferences with regard to what goods to produce, their prices, the rewards to labor and capital, and even attitudes toward corporate social responsibility. Therefore, the presumed conclusion is that markets have the inherent capacity to serve what people find to be most preferable. The belief that markets tell us what a society prefers leaves very little room to question whether markets indeed serve society’s needs.
But markets are not like the laws of physics which operate outside human design. Markets instead are an institutional mechanism created by people. Thus, they are subject to the self-interest and power of enforcement different market participants have. Markets are shaped by political and economic power. They are also shaped by implicit social contracts that dictate the responsibilities of all parties in a society. For example, in the early decades after World War II, wage and productivity gains were kept in sync and the economy thrived under sky-high marginal tax rates. For the same reason, we observe that market economies in different countries produce different economic and social outcomes. Hence, markets are not inherently bad. Markets deliver what societies want them to deliver.
However, as human-made institutions markets are vulnerable to the self-interest of those who come to command disproportional power. Jason Furman, a Harvard economist, reminds us in a piece in the NYT (3/15/2026) that Adam Smith promoted the institution of markets as a mechanism that allows everyone to pursue his/her self-interest. Even if we doubt that an invisible hand based on self-interest can produce socially beneficial outcomes, we have to ask what are the chances for the successful pursuit of self-interest by ordinary people in an economy dominated by mega corporations? To put it differently, the pursuit of self-interest presupposes a degree of economic autonomy and equality when workers and capital as well as consumers and produces come together to negotiate the terms (wages, return to capital, quality and price) under which they partake in a market-based system. This cannot be possible when economic power and its frequent byproduct, that is, political power are heavily concentrated in the hands of few corporations and business leaders. The result is nothing else but a deviation between the self-interest of the many and that of the few. The loser is the attainment of a society that fulfills the interests of the many.
But more than that is at stake. The oligarchical structure of the corporate sector spearheaded by giant finance and tech companies has enabled corporate chieftains to amass such inordinate power that they feel that they alone have the vision of what our societies ought to be now and in the future. Therefore, in the interest of that vision we should give them the levers to realize it. That is, the common good is what they perceive it to be with the rest of us not deserving the agency to have a voice at the table.
The paradox and at the same time the inconvenient truth about the American economy is that in spite of its ability to produce enormous wealth it leaves people with so much wanting in terms of financial security and personal wellbeing. This is shown consistently in international rankings where the US ranks behind other advanced economies in happiness, human development, health conditions, and educational attainment.
Given this split reality, that is, an economic system that has produced unprecedented wealth but also acute inequality, mostly stagnant real wages, the shrinking of the middle class, and subpar wellbeing conditions, one has to ask why it persists. Here I believe my second explanation is relevant. There is no movement for reform because our economic system has been captured by powerful corporate and money interests thus placing it outside any effective mechanism of checks and balances. Columbia University professor Tim Wu writes in the NYT (3/31/2024) “The authors of the Constitution believed unaccountable and centralized power was the chief evil facing any nation. Had they been familiar with the modern American corporation, surely hey would have wanted to check its power.
Corporate power is first checked by the existence of competitive markets. That’s missing right now as the American economy has turned more oligopolistic than in past periods. The second check comes from corporate boards that ought to represent the interests not only of shareholders but other stakeholders as well, thus being able to speak for the interests of society at large. That was the intent of the short-lived commitment to Environmental, Social, and Governance principles. Instead, we have very large and hugely influential corporations controlled by powerful executives with effective control of their boards. Whether it is protecting the privacy of personal data, curbing the adverse effects of social media or pursuing AI without proper guardrails, we are at the mercy of mega corporations and their executives behind them. Finally, the third check comes from government laws and regulations. Even here though corporate power, the result of unencumbered political contributions and lobbying, has proven effective enough to thwart any meaningful checks in the form of laws and regulations.
So, what can we do to restore the balance of power between the self-interest of the many and the self-interest of the few and give our economic system a chance to serve society at large? And what can we do to ensure that our future is shaped by the vision of the many not just that of the few? For starters, we can use the anti-trust laws to restore competitiveness in markets captured by mega corporations. This can start by curbing the predatory acquisitions of budding technology firms by their mega rivals, which kills competition as well as innovation. In the period before the full deregulation of the financial industry in 1999, commercial banks were prohibited from conducting securities business. Similarly, we could prohibit the formation of conglomerates that combine industrial activities with social media (e.g., Tesla and X) or with mass information media (e.g., Amazon and Washington Post). Dominating diverse sectors of the economy breeds enormous economic and political power. We should also reform the corporate boards of large corporations or firms with significant social impact (i.e., social media, AI) to include members who would represent society at large and would check profit seeking without regard to its social responsibility. If we are serious about enabling working class people to share more fairly in the prosperity of the economy, labor rights, including unionization, should be enhanced not diminished.
Finally, there is one more way to curb the power of large private interests and steer them toward serving the national and social good. This is the adoption of a strategic industrial policy. No matter how abhorrent this used to sound to economic conservatives, it ironically emerged in the first Trump administration. It got more steam during the presidency of Joe Biden and it has continued in Trump 2.0. Biden was successful in having Congress pass bills to bolster the domestic production of semiconductors, the production and adoption of green energy, and the upgrading of the country’s infrastructure. The current administration has earmarked tens of billions of dollars for equity stakes in companies of strategic importance, especially in the high-tech sector.
These forays into industrial policy have found support among liberal politicians and economists. One such economist is Mariana Mazzucato who is on the faculty of the University College London. Mazzucato has long advocated for industrial policy initiatives. First, she points out states are not passive actors in the economic making of countries. Many hugely successful commercial products have been based on the pioneering research of government funded research centers, whether national, private, or academic, including aerospace, the internet (GPS and AI), health and biotechnology (vaccines, genomics), energy and the environment. And yet the role of the state as an active and often indispensable actor of economic progress has been deliberately underrated. Mazzucato argues that the state ought to use its contribution to the success of the business sector by setting conditions that help promote socially and nationally beneficial policies. Mazzucato also supports the idea that if the state is to bail out or support individual firms it does so by taking equity stakes in exchange of public funds and by influencing corporate behavior toward socially desirable outcomes.
An active industrial policy is not without downside risks. It could distort competition, devolve into favoritism for political gain, and it does not guarantee the pursuit of best priorities. For example, there is a lot of criticism directed at the current administration’s favoritism of fossil fuels at the neglect of green energy. It seems then that an effective and generally acceptable industrial policy should operate under a mechanism that ensures a broader consensus.
The present reality of allowing the economic system to operate without regard to the common good and without checks and balances is the challenge our civil society faces and needs to address.
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