[Congressional Record Volume 140, Number 110 (Wednesday, August 10, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: August 10, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                      THREE CHEERS FOR CAPITALISM

                                 ______


                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                       Wednesday, August 10, 1994

  Mr. CRANE. Mr. Speaker, as Congress nears consideration of a 
Government-run health care system, I believe that Members need to be 
reminded of the proven inefficiencies of a centrally planned economy. 
The free market and capitalism have been tested through history and 
have shown that they are the best method for distributing everything 
from pins to health care. The United States is the world leader in 
health care because the Government has been largely absent from the 
decisionmaking in that service. We have also noted that when the 
Federal Government becomes involved in a service, like the U.S. Postal 
Service, performance is subpar compared to free market alternatives, 
like United Parcel Service.
  I am enclosing the September 1993 issue of ``Imprimis'' in which 
Malcolm S. Forbes, Jr., describes the free market as the most moral 
economic system known to mankind. I commend this article to the 
attention of my colleagues and urge them to heed the advice of Mr. 
Forbes as we begin debate on health care.

                    [From Imprimis, September 1993]

                      Three Cheers for Capitalism

                      (By Malcolm S. Forbes, Jr.)

       Living in the 1990s, we are uniquely able to judge what the 
     American economy has achieved in the 20th century. For this 
     reason, we ought to give three cheers for capitalism. By the 
     term, I mean ``democratic capitalism,'' which is as 
     fundamentally different from the ``managed capitalism'' of 
     modern-day central planners as it is from the ``state 
     capitalism'' of old-style fascists, socials, and communists.
       Capitalism works better than any of us can conceive. It is 
     also the only truly moral system of exchange. It encourages 
     individuals to freely devote their energies and impulses to 
     peaceful pursuits, to the satisfaction of others' wants and 
     needs, and to constructive action for the welfare of all. The 
     basis for capitalism is not greed. You don't see misers 
     creating Walmarts and Microsofts.
       Think about it for a moment. Capitalism is truly 
     miraculous. What other system enables us to cooperate with 
     millions of other ordinary people--whom we will never meet 
     but whom we will gladly provide with goods and services--in 
     an incredible, complex web of commercial transactions? And 
     what other system perpetuates itself, working every day, year 
     in, year out, with no single hand guiding it?
       Capitalism is a moral system if only because it is based on 
     trust. When we turn on a light, we assume that there will be 
     electricity. When we drive into a service station, we assume 
     that there will be fuel. When we walk into a restaurant, we 
     assume that there will be food. If we were to make a list of 
     all the basic things that capitalism provides--things that we 
     take for granted--it would fill an encyclopedia.


                  How to Become Successful Capitalists

       How do we become successful capitalists? The answer sounds 
     simple, but it is often overlooked in places where you would 
     think they would know better. (I am referring, of course, to 
     government, the media, and our most elite business schools 
     and economics departments.) We succeed as capitalists by 
     offering goods and services that others are willing to buy. 
     Many capitalists do not make correct assumptions about what 
     to offer and fail, but that is as it should be. There is no 
     guarantee of success in any area of life, including 
     business--there is always risk. The particular advantage of 
     capitalism is that failed businesses don't necessarily equal 
     a failed economy; they make way for successful businesses.
       But even the most successful businesses can't afford to 
     forget about market principles. AT&T is a case in point. In 
     the 1970s, fiber-optic technology was available, but AT&T 
     decided that it would delay fully converting for perhaps 
     30 to 40 years. It wanted to fully depreciate its old 
     plants and equipment, and, because it enjoyed a virtual 
     monopoly over its customers, it saw no reason to spend a 
     lot of money on a new long distance calling system. But 
     then an upstart company, MCI, raised a couple billion 
     dollars through the much-maligned ``junk bonds'' market in 
     order to set up its own fiber-optic network. AT&T had no 
     choice but to keep up with its competition, and, as a 
     result, the U.S. experienced an enormous advance in 
     communications that has put it ahead of its foreign 
     competitors and that has benefited hundreds of millions of 
     consumers.
       About twenty-five years ago, the federal government filed 
     an antitrust suit against IBM because it had grown so 
     successful that its name had become virtually synonymous with 
     the computer industry. But the would-be trustbusters 
     underestimated the vitality of an open marketplace. IBM's 
     dominance of mainframe computers, microchips, and software 
     did not prevent the rise of rival companies such as Digital 
     Equipment, Apple Computer, Sun Microsystems, and Microsoft. 
     Today, IBM's very existence is in jeopardy.
       Around the same time, John Kenneth Galbraith wrote The New 
     Industrial State, in which he argued that though the Ford 
     Motor Company was no longer the biggest of the auto companies 
     (GM had roughly 50 percent of all sales), Ford was so large 
     that it did not have to pay particular attention to its 
     shareholders or its customers. Apparently, Japanese 
     automakers did not read John Kenneth Galbraith, or the 
     reports of countless other ``experts'' who claimed that it 
     was impossible to compete against Ford, GM, and Chrysler. 
     They even ignored their own early failures to storm the U.S. 
     market in the 1950s and early 1960s. Finally, after year, of 
     trying, Japanese automakers succeeded--and succeeded to an 
     extent that no one could have predicted--in challenging the 
     hegemony of the ``giants'' in Detroit.
       Then there is Sears & Roebuck. What more mundane business 
     could there be than retailing? Yet, around the turn of the 
     century, Sears made retailing truly exciting, reaching out to 
     millions of people with new marketing methods and new 
     products. By the end of the 1940s, it dwarfed all 
     competitors. In the last several decades, however, the 
     company lost its way and became a self-serving, insulated 
     bureaucracy. Now it is closing its doors on numerous stores. 
     Its market share has plunged--and its profits have almost 
     disappeared.
       Why, by contrast, has another retail firm, Walmart, 
     achieved its phenomenal success? Not because its founder Sam 
     Walton used to ride around in a pickup truck visiting his 
     stores, though that was good publicity. It was because he 
     recognized the importance of computer technology and had 
     systems devised that help store operators respond to 
     inventory information on a weekly and even daily basis. Sam 
     Walton knew that success, even once it was achieved, was 
     something that couldn't be taken for granted.
       What should be clear from each of these examples is that 
     capitalism is not a top-down system--it cannot be mandated or 
     centrally planned. It operates from the bottom up, through 
     individuals--individuals who take risks, who often ``don't 
     know any better,'' who venture into areas where, according to 
     conventional wisdom, they have no business going, who see 
     vast potential where others see nothing.
       Often, these individuals literally stumble across ideas 
     that never would have occurred to them if they were forced to 
     work in a top-down system. And they take supposedly 
     ``worthless'' substances and turn them into infinitely 
     valuable ones. Look at penicillin. Whoever thought that stale 
     bread could be good for anything? The same goes for oil 
     before the invention of the gasoline engine and the 
     automobile and for sand before the invention of glass, fiber-
     optics, and the microchip.
       There is another important thing to remember about 
     capitalism: Failure is not a stigma or a permanent obstacle. 
     It is a spur to learn and try again. Edison invented the 
     light bulb on, roughly, his ten-thousandth attempt. If we had 
     depended on central planners to direct his experiments, we 
     would all be sitting around in the dark today.


                      open vs. managed competition

       This leads to the next question regarding capitalism: What 
     is the market? Central planners don't like the word; they 
     prefer to say, ``market forces,'' as if describing aliens 
     from outer space. But nothing could be further from the 
     truth. The market is people. All of us. We decide what to do 
     and what not to do, where to shop and where not to shop, what 
     to buy and what not to buy. Sop when central planners trash 
     ``market forces,'' they are really trashing us.
       Unfortunately, they are the ones who seem to be calling the 
     shots today on a number of issues that should be left up to 
     the market, i.e., up to us. One such issue is the spiraling 
     costs of health care. Not surprisingly, central planners 
     advocate a top-down approach to reform. With unconscious 
     irony, they call it ``managed competition.''
       But we have already tried managed competition, in fact, it 
     is managed competition that has caused so many problems in 
     the health care industry in the first place. Specifically, 
     the tax code penalizes individuals who want to buy medical 
     insurance by making them pay for it with after-tax dollars, 
     even if they are self-employed. Only 25 percent of their 
     premiums are deductible. But companies may buy health 
     insurance with pre-tax dollars. So they, instead of their 
     employees, have become the primary purchasers of insurance. 
     This drives a wedge between the real customers and the real 
     providers and obscures the real costs of such features of the 
     system as low deductibles. Imagine if every time you went to 
     the super-market you gave the cash register receipt to your 
     employer, who then submitted it to the insurance company for 
     a claim. What would happen to food prices? They would 
     skyrocket, because you wouldn't care whether a bottle of soda 
     cost $10, $100, or $1,000.
       The problem doesn't stop there. Growth in demand and 
     improvements in technology--key ingredients to success in any 
     other business--have instead led to crisis in the health care 
     industry. More people are receiving better treatment than 
     ever before and leading longer, healthier lives, but 
     perversely this has sent costs up rather than down and has 
     overloaded the delivery system.
       If we want genuine health care reform, we must return to 
     open competition. The tax code must be revised so that 
     individuals can buy health insurance with pre-tax dollars and 
     set up medical IRAs for their families that can be used to 
     finance routine medical expenses. There is no doubt that a 
     majority of Americans would choose this option. They want to 
     have control over their own health care decisions. Many would 
     choose policies with higher deductibles. Premiums would go 
     down and so would paperwork. Physicians and hospitals would 
     see their patient load come under control and would be 
     induced to offer competitive rates and services. The 
     potential benefits are enormous.
       A couple of years ago, Forbes Inc. faced yet another round 
     of steeply rising costs for health care. We wanted to do 
     something that enabled our employees to police those costs in 
     a way we, the employer, were unable to do. So we gave them a 
     stake in the process. We offered them a bonus: They could 
     keep the difference between their claims and $500--and we 
     would double the amount. Thus, if they went through a 
     calendar year without filing any health claims on the 
     insurance company, we would pay them as much as $1000, tax 
     free.
       What happened? Suddenly, every employee became cost-
     conscious. On major medical and dental expenses, claims went 
     down 30 percent. These savings financed the bonuses and our 
     total health care costs went up zero percent last year. This 
     was not because we compelled millions of people to 
     participate in some ``managed competition'' scheme, but 
     because we let a few hundred individuals make their own 
     health care decisions.


              letting individuals make their own decisions

       Letting individuals make their own decisions is what 
     capitalism is all about, but virtually all central planners 
     (now in their heyday under the Clinton administration) and a 
     good many members of the U.S. Congress (Republicans as well 
     as Democrats) fail to realize it. They do not, for example, 
     realize that it is the decisions of individuals that really 
     decide how much tax revenue the government collects and how 
     well the economy prospers. Between 1982 and 1986, the 
     American private sector created well over 18 million new 
     jobs, including a record number of high-paying positions. Of 
     these, 14 million were created by new businesses. But, in 
     1987, Congress raised the capital gains tax to one of the 
     highest levels in the industrial world. What happened? New 
     business and job creation declined sharply. The nation was 
     hit with a recession. And tax revenues, which were supposed 
     to rise, went down. All this occurred because individuals 
     made the decision not to invest. Today, there is almost $7 
     trillion of unrealized capital gains that is going begging 
     because of high taxes. If Congress lowered the capital gains 
     rate, it would mean more not less tax revenues. It also would 
     overwhelm any stimulus package Washington could concoct for 
     revitalizing the economy.
       Central planners also tend to be big fans of ``industrial 
     planning,'' whereby government picks the ``winners'' in the 
     marketplace through subsidization of select companies and 
     technologies. They ignore the fact that this will obliterate 
     incentives for companies to remain competitive, breed 
     corruption and special interests, and penalize the small 
     businesses that are the backbone of the economy.
       And they want to micromanage the monetary system, knocking 
     down the value of the dollar against the yen or raising it 
     against some other currency in closed-door meetings with 
     bureaucrats from other industrialized nations. They do not 
     realize that one of the most important functions of money is 
     to serve as a constant, reliable measure. A ruler is supposed 
     to be 12 inches long, but they want to change it to 11 or 13 
     inches whenever it suits their political strategy. You and I 
     might call this a swindle, but in Washington it is called 
     sophisticated economic management.
       Even such a simple word as ``change'' takes on a whole new 
     definition in Washington, meaning change directed from above 
     by well-intended central planners and politicians who think 
     that they ``know better'' than most people when it comes to 
     making decisions. But, in truth, the most revolutionary 
     sweeping agent of change is capitalism. Look at what has 
     happened in Eastern Europe, the Soviet Union, Latin America, 
     and Asia. When people are free to make their own decisions, 
     they have a stake in the economy, and when they have a stake 
     in the economy, they have a stake in serving others, and when 
     they have a stake in serving others, they have a stake in 
     fighting for freedom.
       Capitalism is the real enemy of tyranny. It stands not for 
     accumulated wealth or greed but for human innovation, 
     imagination, and risk-taking. It cannot be measured in 
     mathematical models or quantified in statistical terms, which 
     is why central planners and politicians always underestimate 
     it. As I noted at the outset, it is up to us, then, to give 
     three cheers for capitalism. Who knows? If we cheer loud 
     enough, perhaps even they will listen.

                          ____________________