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American capitalism is currently very different in practice than in theory Felix G. Rohatyn, former U.S. Ambassador to France, told an audience at the Kennedy School of Government Thursday night.
“The vision we have of American capitalism is that of a market-driven system where government regulation and a Protestant ethic help ensure that the public interest is protected, where the federal reserve maintains a stable currency and where a responsive budgetary policy allows strong investment in technology and innovation,” said Rohatyn. “A progressive tax system is then expected to provide for a fair distribution of benefits to society as a whole.”
Seen from abroad, however, the current practice of capitalism in America is quite different, Rohatyn said. Huge government deficits are generated by a rapidly growing military budget, taxes are being cut instead of being raised to meet expenses, and a weak dollar and a burgeoning speculative bubble in the real estate markets are perceived as creating great risk.
“In the late 1990s as ambassador to France, I spent much of my time singing the praises of American capitalism,” Royhatyn said. But back at home the system was changing. In summing up those changes — soaring executive compensation with little accountability for performance; deregulation; speculation and the dot-com bubble — Royhatyn declared that greed had become one of the main engines of American market capitalism.
According Royhatyn, the biggest speculator of all is now the U.S. government. “The Bush administration gave in to the conservative anti-tax revolution of the 70s and went to war in Iraq while greatly underestimating the cost,” he said. “We have become the world’s largest debtor, the dollar has become one of the world’s weakest currencies.”
Rohatyn brings to his analysis experience which, according to Kennedy School Dean David Ellwood, qualifies him as “one of the most original and influential economic thinkers in the world.” A financier and urban policy expert who throughout his career has assisted troubled organizations, one of his more well-known efforts was in leading the Municipal Assistance Corporation of the State of New York in the 1970s, “saving New York City from certain financial meltdown,” according to Ellwood.
Rohatyn warns that the current state of American capitalism could bring about a global financial crisis.
“I’m a capitalist and I believe that market capitalism is the best economic system ever invented. But it must be fair, it must be regulated, and it must be ethical....President Bush’s idea of an ownership society is consistent with the idea of American capitalism. But it is not credible within the context of government policies that increase our external debt every day to the detriment of our national wealth. Those policies cannot be allowed to go on indefinitely,” he said.