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Capitalism We Can Believe In

President-elect Joe Biden’s call to “build back better” after the pandemic is an invitation to renovate America’s outdated neoliberal version of capitalism. The more successful variants of market capitalism found in Europe or, better, in California, point the way forward.

BERKELEY – Even before the COVID-19 pandemic ravaged the United States and other developed economies, trust in capitalism had eroded around the world, particularly among young people. In 2019, when unemployment was low and wages were rising, 56% of respondents to a global survey by the Edelman Trust Barometer nonetheless believed that “capitalism as it exists today does more harm than good.” In the US, specifically, only 51% of young adults in a Gallup poll that year gave capitalism a “positive” rating, while 49% approved of socialism.

Growing distrust of capitalism follows from its failure to address major socioeconomic challenges, not least climate change and inequalities in opportunity, income, and wealth. While private incentives under capitalism are good at stimulating efficiency, growth, and innovation, they also generate unequal income and wealth distributions (even in a context of intense competition), often at odds with social norms of fairness. Moreover, capitalist systems tend to underinvest in public goods like education, health care, and social insurance – all critical factors in the pandemic response – while also discounting negative externalities such as greenhouse-gas emissions.

These shortcomings of capitalism are predictable, but they are remediable through public policies and institutions. Tax and transfer policies and minimum wages can reduce income and wealth disparities, just as public investment in education, training, and health care can enhance opportunity by providing access to good jobs and fostering the creation of new enterprises. Likewise, a price on carbon dioxide and regulations limiting or banning carbon emissions can help the world avert the existential threat of climate change.