Opinion Columns & Blogs

Jonathan Alter: Presidential race offers clash of capitalisms

We can already see the next six months in American politics: Tit for tat. Blow for blow. “You’re Richie Rich.” “You’re Jimmy Carter.”

But discerning voters need to understand the deep philosophical distinctions between Mitt Romney and Barack Obama, even if they don’t lend themselves to campaign slogans or barbs.

Labels such as “conservative” and “liberal” are worn out. “Right-wing” doesn’t fit Romney, who describes himself as “severely conservative” but isn’t a wing nut. “Left-wing” is an inaccurate description of the president, whose most “leftist” initiative – Obamacare – is modeled on plans proposed by those noted Bolsheviks Bob Dole and Howard Baker.

A more useful distinction may be between venture capitalists and human capitalists.

Romney came up as a private-equity investor. Like his party, he believes in his heart that the way forward for the United States is to slash taxes for the wealthy even further so that they have more venture capital to invest in businesses.

Obama came up as a community organizer. Like his party, he believes in his heart that a great nation must invest in human capital through education, health care and infrastructure.

The distinctions get more interesting when it comes to their strategies for creating jobs.

Republicans are right that the U.S. needs to lower the corporate income-tax rate, which in 2012 was the highest in the developed world. But cutting individual rates in 2001 did nothing for job creation; and by keeping taxes low on dividends, the Bush tax cuts inadvertently helped bring about a crisis of capital investment in U.S. manufacturing, the kind of investment that Republicans claim to champion.

The venture-capital answer is to just cut taxes further. The human-capital answer is to use the tax code to incentivize investment not just in plant and equipment, but in research and development and workforce training (where companies in the United States are investing about half as much as a share of gross domestic product as they did a decade ago).

U.S. companies have been the major drivers in R&D spending, but business R&D spending as a proportion of gross domestic product has stayed relatively flat in the U.S. over the past decade. Moreover, just as with capital investment, U.S. companies are spending more of their R&D money overseas.

Why? Because venture interests aren’t national interests but are global entities.

Romney often accuses Obama of not standing up for the U.S. That’s rich coming from a candidate who would slash spending for education and scientific research for Americans to pay for tax cuts for global businesses that invest more and more overseas.

The rap on targeted investment is that it smacks of “picking winners and losers” or “industrial policy.” But the true industrial-policy advocates are the venture capitalists, who pick clean-energy winners (or losers, in the case of Solyndra) if they are Democrats and dirty-energy winners (through tax breaks for oil companies) if they are Republicans.

The human capitalists have the better argument – one based on investing in basic research, education and health care, the kind of things that spur long-term growth and competitiveness.

A campaign full of such debates would help us come closer to understanding which capitalist tool is the right one for retooling the American economy.