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Reviving Capitalism

Issue Analysis

Title

Reviving Capitalism

Lessons from the Near-Death and Rebirth of American Railroads

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Free market capitalism, the system that has made possible the prosperity we enjoy today, has been in retreat over the last century. Government’s share of U.S.GDP has continued to grow—save for a few interruptions—while the regulatory burden on businesses has steadily expanded. In 1890, total government spending accounted for about 6 percent of the U.S. economy. Today, that figure is almost 34 percent—approximately $6 trillion total at the federal, state, and local levels—with another $1.88 trillion in regulatory compliance costs.

This retreat has been caused in part by the failure of business leaders to defend the moral legitimacy of their companies and products, and indeed, of capitalism itself. Businesses are good at communicating how they advance  the interest of their various economic partners—providing consumers a wide array of products, employees with competitive wages, suppliers with a reliable customer, and investors with a return on investment. But they are much less expert at conveying how private enterprise also advances societal cultural values.

The result is widespread popular support for top-down government regulation of the economy. To push back against, and even reverse, this trend, business leaders need to gain the societal legitimacy needed to fend off political predation. In short, continued success in the marketplace increasingly requires successful promotion of economic freedom in the public policy arena.

This case study sketches out one such successful effort, in the freight railroad industry’s response to political intervention over the last century. The political and economic history of American railroads suggests that regulatory restrictions can be reduced as well as expanded. It also offers concrete lessons on how other types of businesses might respond to government overregulation and gain greater economic freedom in general.

Success in the policy arena requires entrepreneurial and intellectual investments in promoting economic freedom, just as investment in promoting one’s products leads to success in the marketplace. This essay clarifies the  nature of such investments, the rationale for business leaders to join in the fight for economic liberty, and why such efforts may offer attractive economic returns.