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As Capitalism Wins, the U.S. Drops Out

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American political and economic life has entered a twilight zone. As countries everywhere are embracing capitalism, the United States, unfortunately, is moving toward democratic socialism.

As I travel the world, the irony could not be more profound. I’ve been to Mexico to talk about free-market reform, to Russia and Eastern Europe — to meet with young entrepreneurs, and all over Southeast Asia. I come from countries that are privatizing industry — only to return home to a country that is about to nationalize health care. We praise privatization the world over — while calling for more state intervention in our own affairs.

Why should this be? It all comes back to one of oldest philosophical debates: civil versus statist society. And the Clinton Administration — which sees no task as too small, no dream too large, no issue too delicate for probing government hands — has clearly joined the statist camp.

The difference between the two boils down to who has the power to make some of the most important decisions in life. Do you invest your money, or does someone do it for you? Do you choose your children’s schools, or are they chosen for you? Can you pick your doctor, or is your treatment predetermined by a state plan?

In the civil society, you make these choices for yourself; in the statist society, these choices are made for you. In return for your cooperation, the statist society — witness the marketing of the Clinton health reforms — promises you security.

But it is a false promise and a fool’s gold. The promise is predicated on the idea that the opposite of security is risk. Nothing could be further from the truth. The opposite of security is insecurity, and the only way to overcome insecurity is to take risks. The opportunity to succeed has always meant the freedom to fail. When the state promises you security, it impedes, almost inevitably, your chances of long-term success. Because when security is your goal, risk is to be avoided; when risk is avoided, growth cannot occur; and when growth is nonexistent, the energies, intelligence and self-interest that might have gone into creating wealth-expanding the pie — go instead into dividing it up. Society’s focus shifts from opportunity to entitlement.

Ever since Eden, man’s desire to be sheltered from the harsh winds of reality has competed with his aspiration to risk and grow. This makes the state’s promise of security seductive. However, the gentle government that promises to hold our hand as we cross the street, once on the other side, refuses to let go. Jefferson, for one, warned that state compassion and state compulsion are inextricably linked. “Government,” he said, “can do something for the people only in proportion as it can do something to the people.”

The statist society seeks to circumvent the clumsy encumbrances of democracy and capitalism, and it always does so in the name of good things like health care and education. Its impatience assumes that a government of idealists and experts can know our interests and act on them more effectively than we can — if only we’d step out of the way. The economist Friedrich von Hayek called this fallacy “the fatal conceit.”

The current romance with statism has its roots in the most significant domestic development of the 20th century — the takeover of American life by government. In the early 1900’s, total spending at the federal, state and local levels was 10 percent of national income. By 1950, that figure had risen to 26 percent. Today, it stands at 43 percent and continues to grow. If you agree with the economist Milton Friedman that the true level of taxation is the level of state spending, America is clearly in danger of being taxed to death.

In many sectors, this takeover is almost complete. For the first time, more Americans are employed by government — 18.7 million — than by manufacturing — 18.1 million.

It’s been an aggrandizement of mediocrity. Statism American-style — better known as the social welfare state — has increased ignorance while spending more on education, increased racial tensions while trying to engineer equality, and destroyed the very families it set out to save.

But the most important thing about statism is not that it doesn’t work, but that it can’t. No central planner — not even one as smart as Bill Clinton — can match the sheer genius of the marketplace, with individuals acting on their own interests, inspired by their own dreams.

As we preach our gospel of democratic capitalism around the world, it would serve us well to remember these truths at home. If we have lost our will, maybe we should just hang up a large sign to proclaim to the world, “Just kidding.”

This article appeared in the March 27, 1994, issue of The New York Times and was adapted from a commencement address Mr. Forstmann delivered at Pepperdine University. Copyright © 1994 by The New York Times Company. Reprinted by permission.

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    Mr. Forstmann heads Forstmann Little & Company, an investment firm.