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Unleashing Capitalism

Unleashing Capitalism. Russell S. Sobel, Ph.D. Over 5,000 copies sold Over 200 public presentations Presentations to 2 Governors Won Sir Antony Fisher Award. What Explains Prosperity?. Adam Smith’s Question: Why Are Some Countries Rich and Others Poor?.

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Unleashing Capitalism

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  1. Unleashing Capitalism Russell S. Sobel, Ph.D.

  2. Over 5,000 copies sold • Over 200 public presentations • Presentations to 2 Governors • Won Sir Antony Fisher Award

  3. What Explains Prosperity?

  4. Adam Smith’s Question:Why Are Some Countries Rich and Others Poor? An Inquiry into the Nature and Causes of the Wealth of Nations (1776) • Policies and the system of economic organization (e.g., capitalism) matter more than things such as resources, geography, education, etc.

  5. Rankings of Reliance on Capitalism

  6. Economic Growth is a Function of Both “Inputs” and “Institutions”

  7. Route 50

  8. 2 3 Wise use of Tax Money? 1

  9. North Korea vs. South Korea Per Capita Income = $1,800 Per Capita Income = $24,200

  10. States also Differ in Reliance on Capitalism We are less “free market” than Estonia and Latvia West Virginia Ranks 50th in Capitalism

  11. WV’s PCPI: Rank 48th – 75% of U.S. Average

  12. We Are Falling Behind Other States

  13. 1965 PCPI Ranks: WV=42, GA=41, NC=45

  14. 1965 PCPI Ranks: WV=42, GA=41, NC=45 2005 PCPI Ranks: WV=48, GA=33, NC=35 Growth Rates: WV=1.4%, GA=2.0%, NC=2.2%

  15. What Faster Growth Means for Future Prosperity Average income in West Virginia will reach $50,000 an entire generation earlier if we can increase long-run growth by just one percentage point

  16. How Can Policy be Reformed to Better Embrace Capitalism and Promote Long-Run Growth? Today I’ll give a “menu” of reforms in 5 major areas

  17. 1. Lower Taxes & Regulations on Productive Activities Examples: Capital Investment • Business franchise tax • Personal property tax on inventory, machinery and equipment Labor Force - Welfare Reform Earned IncomeSpendable Income • $0 • $6,000 • $12,000 • $11,026 • $11,014 • $15,286

  18. 2. Discourage “Unproductive” Uses of Resources (e.g., excessive lobbying or lawsuit abuse) Examples: Legal Reform • Our new book: “The Rule of Law” • End Partisan Election of Judges • Venue Requirements Avoid targeted taxes, credits, & subsidies - they encourage lobbying

  19. 3. Rely on Entrepreneurial Discovery, Not “Central Planning,” to Guide the State Economy An economy undergoes continuous change – some industries fail, others are born Capitalism critically relies on entrepreneurship and the profit and loss system to direct this process This process cannot be centrally planned or directed effectively - it must be discovered within the marketplace

  20. The Reason …Because Nobody Knows Ken Olson, chairman/founder of Digital Equipment Corp., 1977. "There is no reason anyone would want a computer in their home." Fred Smith’s (FedEx) Yale University Senior Project Grade Remark: "The concept is interesting and well-formed, but in order to earn better than a 'C,' the idea must be feasible." Would You Have Invested? Microsoft Corporation, 1978

  21. To Promote & Unleash Entrepreneurship: • Avoid interfering with the profit/loss mechanism • Avoid regulating prices or wages • Privatize or induce choice whenever possible • Don’t impose barriers to entering occupations & industries

  22. Barriers to Entrepreneurship

  23. 4. Reduce Government Size, Growth, and Centralization • Goal should be to increase the share of our state economy controlled through the private sector • An important first step is to constrain future state spending growth

  24. Growth of WV State Govt. 1921 B&O Tax Adopted – Converted to Bus Franchise Tax 1987 1933 Consumer Sales Tax Adopted

  25. 4. Reduce Government Size, Growth, and Centralization • Goal should be to increase the share of our state economy controlled through the private sector • An important first step is to constrain future state spending growth • Overall spending can also be reduced and made more effective by decentralizing spending to local governments (WV is 2nd most centralized state)

  26. 5. Increase the Security of Property Rights & Impose Checks on the Regulatory Environment • Restrict the use of eminent domain for private redevelopment (post-Kelo) (H.B. 4048 was passed in 2006 but it didn’t go far enough) • Regulations should be subject to cost-benefit analysis (and include sunset provisions based on proof of effectiveness) - Ex. Mine Safety, ATV

  27. Thank You / Q&A

  28. The Rule of Law: Reform Summary Replace partisan elections of judges with nonpartisan elections Restrict the power of local governments to use Eminent Domain (prohibit private transfers & redefine “public use and blight”) Eliminate joint and several liability in all civil tort claims End venue shopping by imposing meaningful venue requirements Impose statutory limits on punitive damage awards, or increase the standard for determining when to award punitive damages Create intermediate appeals court system and an appeal of right Revise the standard for “deliberate intent” in workers compensation cases

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