(By Arthur Brooks, Washington
Post, July 13, 2012)
1. Free
enterprise hurts the poor.
The Occupy Wall Street movement of 2011 and plenty of
politicians would have us believe that the free-market system is a contest
between the ultra-rich and everyone else (the “99 percent”). But in fact, there
never has been a greater force for helping the poor than free enterprise. Since 1970, the percentage of the world’s
population living on the equivalent of less than a dollar a day has fallen by more than 80 percent.
Hundreds of millions of people have been pulled out of grinding deprivation. This miracle was not the result of U.N.
development projects or U.S. foreign aid. It was free trade, rule of law,
property rights and entrepreneurship that achieved this miracle. In China
alone, free trade and foreign investment lifted
400 million Chinese out of absolute poverty between 1981 and 2001.
Whatever the Occupy movement claims,
every American earning more than $34,000 a year is in the world’s top 1 percent,
as World Bank economist Branko Milanovic calculates in his book “The
Haves and the Have-Nots.” Americans make up less than 5 percent
of the planet’s population, but we’re about half the members of the world’s 1
percent. And we’ve accomplished that through our commitment to free enterprise.
2. Free markets are driven by greed.
I once asked Charles Schwab how he built the $16 billion
investment company bearing his name. He never said a word about money. He spoke
instead about accomplishing personal goals, creating good jobs for employees
and the sacrifices along the way — including when he took a second mortgage on
his home so he could make payroll. Entrepreneurs
are rarely driven by greed. According to Careerbuilder.com, in 2011, small-business
owners made 19 percent less money per year than government
managers. And as Northwestern University business professor Steven Rogers
has shown, the average entrepreneur fails about four times before succeeding. Free markets and entrepreneurship are driven not by greed but by earned success. For some people, earned success means business success, while for others, it means helping the poor, raising good kids, building a nonprofit, or making beautiful art — whatever allows people to create value in their lives and in the lives of others. Earned success gets at the heart of “the pursuit of happiness.” The General Social Survey from the University of Chicago reveals that people who say they feel “very successful” or “completely successful” in their work lives are twice as likely to say they are very happy about their overall lives than people who feel “somewhat successful.” And it doesn’t matter if they earn more or less; the differences persist.
3. Free enterprise breeds envy.
Americans don’t resent the wealthy. In a poll in April, the
Pew Research Center found that 88 percent said they admired people who get rich by working
hard. This is one way the United States
is exceptional. In the World Values Survey conducted between 2005 and 2007,
researchers asked people in 54 nations whether success flows from hard work or
from luck and connections. Americans were more likely than people in other
developed countries — twice as likely as the French, for example — to say
success comes from hard work. In a society that rewards initiative and offers opportunity, free enterprise fosters aspiration and ambition. In a social democracy with economic stagnation, you find envy, resentment, unrest — just look at Greece and Spain, where people are demanding government benefits instead of demanding to keep more of what they earn.
4. The free market caused the financial meltdown.
It wasn’t free enterprise that was at fault; it was the lack
of free enterprise. Statism and its co-dependent spouse — corporate cronyism —
melted down our economy. As my American
Enterprise Institute colleague Peter Wallison has documented, two
decades of misguided government policy contributed to a massive bubble in
housing. When it began to deflate, so did the whole financial system. And who
showed up first in the bailout line? Large corporations, including car
companies and mortgage giants Fannie Mae and Freddie Mac. Find me an
opportunistic politician chumming the waters with tax loopholes, and I’ll show
you a corporate shark. This isn’t the
free market at work — not even close. It’s a toxic mix of big government and
its corporate clients. We need more free enterprise, not less — free enterprise
where entrepreneurs put their money on the line and earn a profit or suffer a
loss.
5. Free enterprise is unfair.
When I was an economics professor, my students would
sometimes argue that it was “not fair” for the rich to have so much more than
the poor. So halfway through the course, I proposed that a quarter of the
points earned by the top half of the class be passed on to the students in the
lower half, to improve grade equality. Unanimously, the students agreed that
this would be unfair. I didn’t have to
spell out my point much.
Income redistribution is necessary to pay for the state and
desirable to finance a social safety net, but as long as incomes are
legitimately earned, redistribution is not intrinsically “fair.” For a majority
of Americans, fairness means not redistribution, but rewarding merit — and that
is what free enterprise does. In 2006,
the World Values Survey asked a sample of Americans to consider two similarly
placed workers, one of whom was more reliable and efficient than the other. Was
it fair, they asked, that the better one was paid more? Approximately 89
percent of respondents said it was.
And since 1973, the General Social Survey has asked
Americans this question: “Some people say that people get ahead by their own
hard work; others say that lucky breaks or help from other people are more
important. Which do you think is most important?” For 40 years, between 60
percent and 70 percent of Americans have chosen “hard work.” Unless you believe that Americans don’t earn
their success, you must recognize that free enterprise makes our nation more
fair.
