Capitalism, economy & financial well-being in America, Change & the rate of change, Education, Jobs, Organized religion and community

Sustaining American Democracy – An Overview

November 9, 2017

The 2016 presidential election has made it very clear that America has under gone major changes in our society and in our political system; changes that bring into question the future health of our democracy.  There is no historical evidence that a liberal democracy such as ours can thrive for generations, particularly in an interconnected global environment with rapid change such as we are experiencing.  Today, American liberal democracy faces a major challenge.

Simply stated, democracy is a system of government where citizens exercise power.  To be healthy and to thrive it must be assumed that the citizenry share some common values and interests.  It is this core of shared mutual interest among the citizenry that provides the basis for productive discussion and debate,  the foundation of democracy.  In a fragmented and polarized society, such as we face today, members of the polar extremes share little.  Today, the US is experiencing ever increasing gaps in economic status and education, and as a result discontent and political polarization.  Our common ground is lost.  Looking forward, the situation is likely to be exacerbated by the increasing rapid rate of change driven by technology and globalization.  Violence has become more common as a means of voicing discontent and frustration.  It is time to look to a change in approach to governance to put our democracy back on track.

It is instructive to take a moment to look back at how we got to where we are today, and to identify what has changed. The reconstruction after WWII brought growth, particularly to the US.  With economic growth came opportunity, a surge in manufacturing, fulfilling jobs, personal satisfaction and general contentment.  Everyone, business and labor, benefitted.  The country with its uniquely diverse population enjoyed relative social harmony.  But then came globalization driven in large part by technology.  The result has been the export of labor, elimination of jobs by technology, stagnation in wages and accumulation of the major share of wealth by a new elite class.  As global competition grew, businesses consolidated for greater competitiveness.  Bigger was better.  Then starting in the 80’s the economy slowed.  While the composite numbers were significant but not alarming, the greater change was in the distribution of the slowdown.   The result today is a large segment of the population is feeling left out and seeing no obvious effort by government or the establishment to remedy the situation.  This economic stress is most often described as the lack of well paying jobs, in particular for the middle class.  While unemployment is down, tax revenues are not up, suggesting many are underemployed and, if employed, unable to keep pace with the increases in the cost of living.  Meanwhile, the elite, “the 1%”, have thrived, taking advantage of the opportunities of the globalization trend. The distribution of wealth has created two disparate economic classes with little in common.  In addition to the financial gap, there is a gap in skills and education in the work force, limiting access to the well paying jobs that are being created.  The well paying jobs in the economy generally require advanced skills and specialty training.  Businesses import labor for jobs requiring special skills, because they cannot be filled domestically, a result of the education/skills gap.  All the trends seem to be accelerating, while society and the government seem unable to keep pace.  The resultant stress has brought out the primal tribal instincts in people and blame is being cast irrationally, based on ethnicity, religion, culture and race.  

The long-term challenge is two-fold: first, reduce the financial and education gaps; and  second, define and implement a governance structure and process that is agile and able to cope with the pace of technology and globalization.  The situation that the country faces has an analogy with the military.  Traditionally, in what used to be conventional warfare, military command and control was strictly hierarchical.  Information was feed up to the top of the chain of command, decisions were made at the top and passed down the hierarchy, a time intensive process.  But warfare has changed, just as the global environment has changed; terrorism and special operations are today’s challenges and require a different approach.  Reaction time is critical, battlefield information needs to be acted on immediately.  So today’s military has changed to meet the challenge.  It is totally networked, centralized command defines intent and the rules of engagement, decentralized control is dependent on the local environment and controls the local execution.  This same model should be applied to modern civil society.  Politics as usual, where everything wants to be debated and decided at the national level will not work in this era of ever accelerating change and polarization.  The role of the Federal government should be to set  national values, standards and guidelines for lower levels of government to work within and to measure the results.

There are two great pillars supporting the premise of US greatness.  First, there is a robust financial and social infrastructure that supports  innovation and the creation of economic opportunity and of course jobs.  Second, and equally important, America builds on its diversity, blending cultural, ethnic and racial diversity to achieve better solutions to the challenges faced by society and new opportunity for all, a “Quality of Community”.  Going forward, America must bolster and build on both of these pillars.

Currently, “Quality of Community” has been relegated to a distant second place to the accumulation of wealth via relatively unbridled capitalism.  To sustain the democracy – reverse these priorities.  Put community building ahead of wealth building.  How to proceed and to define appropriate policy changes are a matter for public debate.  Many ideas have been suggested to support this debate and they can be grouped into four areas: 1.) business, commerce and capitalism, 2.) taxes and fiscal policy, 3.) education, and 4.) social policy and structure.

Business, commerce and capitalism.  Bigger is not necessarily better given the new priorities.  The policy should shift to more aggressive antitrust policy and enforcement.   More smaller enterprises make possible more geographic diversity and more experimentation with job creation and utilization of local skill bases.   Ideas include: (1) foster the development and building of distributed service networks, e.g. tele-medicine and call centers; (2) incentivize distributed manufacturing enabled by high speed networks and advanced manufacturing; (3) bring back “Made in America” programs with labels indicating domestic labor content; (4) more public support of basic research; and (5) enhanced IP protection, licensing of publicly funded technology, and public support of new business incubators.

Taxes and fiscal.  Corporate tax policy needs to be reformed, made more progressive, both for competitiveness and perceived fairness.  A “sales factor apportionment” of net taxable income, as described by Michael Stumo, plus a base 0% lower tier to favor small business, would be a good approach.   The complex array of exclusions, deductions needs to be simplified if not eliminated.  Incentives and subsidies, to the extent that they exist need to favor industries and businesses that create domestic jobs.  Possible ideas for tax incentives include (1) benefits for job creation in areas of chronic high unemployment, and (2) enhanced deduction for domestic vs foreign labor costs.  Individual income tax also needs reform to simplify and eliminate the wasted burden of tax preparation, as well as to improve the perception of fairness.  Ideas for reform include a charitable deduction without limit and an enhanced deduction for job related education expense.  More fundamental reform should also be considered.  An example is the elimination of the social security tax and replacing it with a VAT tax.  This gives low income workers an immediate 6.75% increase.  It also puts us in line with other industrial nations.  In addition, the elimination of income tax on wages below the national minimum wage income would offset the impact of a regressive VAT.

Education.  Education is critical to prepare people for the challenging and rewarding jobs of the future, and to support innovation and the creation of new businesses.  Increasing education increases common ground in political debate and is likely the most effective strategy to counter the current trend of fake news on social media.  Education includes higher education as well as training and trade skills.  Ideas include: (1) incentives to communities and business for providing education and skills training specific to regional and local needs; (2) credit for public service to repay education loans; (3) investment in technology to improve the efficiency and effectiveness of the education process at all levels; and (4) more public support for higher education.

Enhanced social policy/structure.  Stronger, more vibrant communities are critical.   Local ownership of solutions is stronger when there is ownership of the ideas as opposed to outside, top down mandate.  Ideas include: (1) pro-family policies such as child care and paid maternity leave; (2)  incentivize more economically diverse housing; (3) invest in more social/community infrastructure such as transportation, local agriculture; and (4) grant programs for local non-profits to create and run community development efforts.

The government being formed by the newly elected President is dominated by big business leaders, who are intent on reducing the constraints on business.  The nation seems to be facing even more unbridled capitalism.  The economy may very well grow, but the benefits are likely to preferentially benefit the elite. The economic gap will only worsen, along with the social and political consequences. Clearly, the ideas to correct the current status and thereby sustain the American democracy are available. The ultimate challenge, however, is how to find the political will.

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