‘AMERICA’S SCARY ECONOMIC PREDICAMENT , ‘ by Amb. Felix Rohatyn in the N.Y. Daily News.

In Uncategorized on November 23, 2009 at 14:52

Since WWII, America has been the wellspring of market capitalism. During my time as ambassador to France, I saw how fascinated most Europeans were by the economic freedom that is fundamental to our system.


Until the 1980s, American capitalism and European social democracy created reasonably similar economic outcomes. But by the 1990s, accelerating changes in our corporate culture and the functioning of our markets, together with cheap money and easy speculation, resulted in the creation of astounding wealth which, in turn, led to ethical and legal abuses in the business world.


Today, America is facing five major challenges, each one risky on its own and in the aggregate a challenge to democratic society:


1. The weakness of the dollar and the debt crisis


2. The spreading wars and their escalating costs in blood and treasure


3. The growing level of unemployment


4. The worsening fiscal posture of most of the states


5. The short-term horizon for most politicians


The debt crisis resulted from the failure of regulation, a culture of greed and speculation in many of our financial institutions and the failure of senior managers to properly assess risk.


The losses incurred by the government to deal with the crisis, the current estimates for the costs of a comprehensive health care program and the cost of wars in Iraq and Afghanistan, are awesome. At the same time, the U.S. in particular and the world in general are more and more beholden to China for their solvency. As China and Russia control more and more sources of energy and other raw materials, as well as ever-growing currency reserves, this is great cause for concern.


For the countries of the West, in order to maintain control over their finances and reduce their deficits, competitive protectionism may seem politically desirable. The result will be higher interest rates and lower growth, at best.


While this is a grim outlook, we must recognize that we have used up much of our capabilities for economic shock absorbers.


President Obama has called for a jobs summit in December in order to review the options available to both the private and the public sectors.


He must understand this: The single most important economic issue facing us today is the issue of fairness. The stock market boom of the past decades, and its inevitable bust, has created ever wider gaps between the very wealthy and the rest of Americans. The outrageous compensation packages of many corporate managers, and the symbols of abuse, have shaken our faith in the fairness of our system. It has convinced many of our overseas critics that American-style capitalism and globalization exploit the less fortunate.


I have always believed that an advanced, democratic, capitalistic system was founded on three principles: freedom, fairness and the creation of wealth. I believe that market capitalism is the best economic system ever invented but it must be fair, it must be regulated and it must be ethical. Only capitalists can kill capitalism. But our system cannot stand much more abuse of the type we have witnessed recently; nor can it stand much more of the financial polarization we are seeing today.


Raising this issue does not mean engaging in “class warfare.” It means raising the most serious issues of modern capitalism. Theodore Roosevelt said: “A great democracy must be progressive or it will soon cease to be great or a democracy.” T.R., as often, was right on the mark.


Rohatyn, president of FGR Associates LLC, served as U.S. ambassador to France from 1997 to 2000.


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