Warren Stephens, President, CEO, and Chairman of Stephens Inc., questions why young people have a negative perception about our free market system. It is especially puzzling, he writes, in light of their support for entrepreneurism.
When did capitalism become anathema to young people—and why? About a year ago The Institute of Politics at Harvard released survey results showing that more than half of respondents between 18 and 29 do not support capitalism, the free-market system that underpins our economy. An astonishing one-third said they support socialism.
Clearly the tenets of capitalism in America are deeply and fundamentally misunderstood. No system has done a better job addressing the very issues that its critics think are important. Capitalism has stabilized our communities, created jobs, lifted people out of poverty, and empowered them to fulfill their dreams.
Consequently, the merits of America’s free-market system are inspiring economies around the world. According to the Pew Research Center’s Global Attitudes and Trends study, a global median of 66%, from developing and advanced countries, believe people are better off under capitalism. This view is particularly prevalent in emerging economies like Kenya, Nigeria and Vietnam, where growth has been ignited by expansion of the free market. Yet here at home capitalism is now condemned as an elitist system that enriches a few at the expense of the many.
At the same time that young people are rejecting capitalism and free markets, they celebrate entrepreneurs and free enterprise. This disconnect is at best confusing; at worst it’s troubling. Without access to capital, budding entrepreneurs see their ideas wither; without capital, there is nothing to fuel innovation. Capital is the lifeblood of our economy. It must flow freely to ensure the economy’s vitality and health.
I recognize that young people have come of age during some troubled economic times. I suspect this contributes to their discontent and their misguided belief that government interference is the answer. In truth, government meddling is a large part of the problem. The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, has made it harder for firms to lend money and for small and mid-cap companies in particular to access the capital markets. The 2012 JOBS Act tried to make it easier for smaller companies to issue equity in the public markets, but it is not enough. My father, Jack Stephens, used to say, “A great idea never fails for lack of capital, because capital will always find it.” Sadly, I’m not sure that’s true today.
For proof, we need look no further than the growth of private equity, a direct result of the limitations placed on the public markets. Yes, private equity should be an option both for those seeking money and for those who wish to invest it. But we cannot ignore that private equity is a vehicle that excludes most investors. The result: Access to capital and the benefits of capitalism have been concentrated among too small a group, restricting opportunity on both sides. The very individuals and businesses the government purports to help have virtually no chance to participate in and benefit from the creation of great companies.
As we have seen from the stifling effects of increased regulation around capital markets, bigger and more powerful government is not the answer. The appropriate role of government is to provide the framework that allows capital to flow freely, in accord with the law of supply and demand. That is how jobs, businesses and wealth are created. The government would have no money to distribute or spend without the tax revenue generated from the jobs and businesses that are the fruit of our capitalist system.
By virtue of living in the United States, we are all capitalists. Everyday transactions—putting gas in our cars, buying groceries—are just as much a part of capitalism as financing growing companies and investing in ideas. I hope for a day when young people no longer reject that concept but revel in it. As a country, we need to reclaim our pride in capitalism and remember that the markets have the greatest power when they are free, and that free markets empower one and all, not just the few and the select.
This column originally appeared in the Wall Street Journal on June 1.