In its annual survey of 25 countries, GlobeScan asks respondents if the free market is the best system for the world’s future.
When GlobeScan first asked that question in 2002, American confidence in the free market topped the poll at 80%.
If you assume that Americans are still first, think again. The 2010 survey reveals faith in the free market is at a low (59%) in the world’s biggest economy, placing the U.S. fifth behind Germany (68%), China and Brazil (both 67%), and Italy (62%). Intriguingly, American support for free markets dropped 15 points between 2009 and 2010, resulting in an astonishing nine-point advantage for the Chinese.
Undoubtedly, Chinese confidence in free markets is high because 450 million Chinese were lifted out of poverty as China’s government liberalized the country’s economy. However, because the Chinese do not enjoy the inalienable rights accorded to Americans, China materially lags the U.S. in other living standard metrics including civil liberties, life expectancy, infant mortality, child labor and environmental health. Meanwhile, according to the World Bank, China’s national wealth trails America’s in terms of per capita GDP ($7,570 versus $47,020).
The real conundrum is why American support for the free market survived the tumultuousness of the early 2000s — the bursting tech bubble, plummeting stock indices and corporate scandals that eliminated companies like Worldcom and Enron — only to drop last year.
Perhaps Americans are frustrated that the private sector isn’t pulling the economy out of its doldrums, as with past recessions. We’ve become accustomed to economic cycles in which demand eventually increases as businesses replenish inventory and new construction replaces old. To meet increasing demand, companies hire employees and invest in equipment — this is the free market at work.
However, as the Chinese economy has grown freer, the U.S. economy has become less free. Most Americans are unaware that over the last decade, the government sector has grown five times faster than the private sector, according to the Bureau of Economic Analysis. Moreover, politicians interested in political power and rewarding allies from Wall Street to Main Street have undermined the free market with policies that drive up costs on businesses and consumers and create massive uncertainty for investors.
If Americans are down on the free market, they’re gradually realizing it was the government that sabotaged it. Thanks to the new book Reckless Endangerment by New York Times business reporter Gretchen Morgenson and housing finance analyst Joshua Rosner, Americans are learning the true causes of the financial crisis — government intervention in the private housing market and influence peddling among political insiders produced the weakest economy since the Great Depression.
The sad truth is that the financial crisis would never have occurred were it not for government policies that encouraged weak underwriting standards that resulted in the creation of 27 million risky loans (half of all U.S. mortgages). Furthermore, politicians ignored rampant corruption at the government-sponsored entities (“GSEs” called Fannie Mae and Freddie Mac), refusing to regulate them even after accounting scandals. If politicians had performed their duties, the GSEs couldn’t have spawned the seemingly profitable business in loans to people with bad credit that ultimately attracted Wall Street banks.
However, you won’t hear politicians apologizing. They’re busy promoting fallacies, misassigning blame, denying responsibility and enacting “reforms” that do nothing to address the government policies primarily responsible for the crisis. And by seizing even more governmental authority over the U.S. economy, politicians have further weakened the free market, prompting one regulator, Acting Comptroller of the Currency John Walsh, to warn that when regulations are “carried too far, the economy suffers” because higher costs impede the economic activity necessary for growth and job creation.
Consequently, confidence in politicians is as low today as it was during Watergate. Opportunistic politicians who wage class warfare and demonize the successful, industrious and productive actually weaken public confidence in the very free enterprise system that incentivized millions of Americans to take risks, compete, innovate and achieve in the “land of opportunity.” Our free enterprise system is the reason Americans have historically been among the richest and happiest people and why, in a competitive global economy, the U.S. still produces one-quarter of the world’s goods and services despite having less than 5 percent of the world’s population.
To preserve the system that is the source of our flourishing and the bedrock of our culture, we must choose leaders committed to expanding liberty and increasing individual opportunity. In doing so, we’ll recover our confidence in free markets, and realize Abraham Lincoln’s aspiration spoken in the darkest moments of the Civil War: “My dream is of a place and a time where America will once again be seen as the last best hope of Earth.”
You won’t hear that said about China!
Melanie Sturm has 15 years of private equity investing experience, previous to which she specialized in project finance at International Finance Corporation and mergers & acquisitions at Morgan Stanley and Drexel Burnham Lambert. She has an MBA from INSEAD and undergraduate degrees in international relations and economics from Tufts University.