Leaders 9E
lizabeth warrenisremarkable.Bornintoa strugglingfam-
ily in Oklahoma, she worked her way up to become a star law
professor at Harvard. As a single mother in the 1970s, she broke
with convention by pursuing a full-time career. In an era of rule-
by-tweet, she is an unashamed policy wonk who is now a front-
runner to be the Democratic nominee for president in 2020. Polls
suggest that, in a head-to-head contest, more Americans would
vote for her than for Donald Trump.
But as remarkable as Ms Warren’s story is the sheer scope of
her ambition to remake American capitalism. She has an admi-
rably detailed plan to transform a system she believes is corrupt
and fails ordinary people (see Briefing). Plenty of her ideas are
good. She is right to try to limit giant firms’ efforts to influence
politics and gobble up rivals. But at its heart, her plan reveals a
systematic reliance on regulation and protectionism. As it
stands, it is not the answer to America’s problems.
Ms Warren is responding to an enduring set of worries. Amer-
ica has higher inequality than any other big rich country. While
jobs are plentiful, wage growth is strangely subdued. In two-
thirds of industries big firms have become bigger, allowing them
to crank out abnormally high profits and share less of the pie
with workers. For Ms Warren this is personal. Her parents en-
dured the Dust Bowl and the Great Depression in the 1930s and
later her father’s career collapsed because of ill-
ness. As a scholar, she specialised in examining
how bankruptcy punishes those who fall on
hard times. The idea that animates her thinking
is of a precarious middle class, preyed on by big
business and betrayed by politicians feasting on
the corporate dollar in Washington, dc.
Some Republican and Wall Street critics
claim that Ms Warren is a socialist. She is not.
She does not support the public ownership of firms or political
control of the flow of credit. Instead she favours regulations that
force the private sector to pass her test of what it is to be fair.
The scope of these regulations is jaw-dropping. Banks would
be broken up, split between commercial and investment bank-
ing. Tech giants such as Facebook would be dismembered and
turned into utilities. In energy there would be a ban on shale
fracking (which, for oil markets, would be a bit like shutting
down Saudi Arabia), a phase-out of nuclear power, and targets
for renewables. Private health insurance would be mostly
banned and replaced by a state-run system. Private-equity bar-
ons would no longer be shielded by limited liability: instead they
would have to honour the debts of the firms in which they invest.
This sectoral re-regulation would complement sweeping,
economy-wide measures—a 15% social-security levy on those
earning over $250,000, a 2% annual wealth tax on those with as-
sets over $50m, a 3% tax for those worth over $1bn and a 7% extra
levy on corporate profits. Meanwhile the state would loosen
owners’ control of companies. All big firms would have to apply
for a licence from the federal government, which could be re-
voked if they repeatedly failed to consider the interests of em-
ployees, customers and communities. Workers would elect two-
fifths of board seats.MsWarrenisnoxenophobe,butsheis a protectionist. New
requirements for trade deals would make them less likely. Her
government would “actively manage” the value of the dollar.
Ms Warren champions some ideas this newspaper supports.
One reason for inequality is that lucrative corners of the econ-
omy are locked up by insiders. She is right to call for a vigorous
antitrust policy, including for tech firms (see Business section),
zero-tolerance of cronyism, and an end to non-compete agree-
ments that limit workers’ ability to gain higher wages and switch
jobs. Given inflation, her plan to raise the federal minimum
wage to $15 over five years may be a reasonable way of helping
poorer workers. The rich should indeed pay more tax (see Books
& arts section), although we think the practical path is to close
loopholes, such as a perk for capital gains known as carried-
interest, and to raise inheritance taxes, not a wealth tax. And
while a carbon levy is our preferred way to fight climate change,
her plan for clean-energy targets would make a big difference.
However, if the entire Warren plan were enacted, America’s
freewheeling system would suffer a severe shock. Roughly half
the stockmarket and private-equity owned firms would be bro-
ken up, undergo heavy re-regulation or see activities abolished.
And over time Ms Warren’s agenda would entrench two dubious
philosophies about the economy that would sap its vitality.
The first is her faith in government as benign
and effective. Government is capable of doing
great good but, like any big organisation, it is
prone to incompetence, capture by powerful in-
siders and Kafkaesque indifference to the plight
of the ordinary men and women Ms Warren
most cares about. When telecoms firms and air-
line companies were heavily regulated in the
1970s, they were notorious for their stodginess
and inefficiency. Ms Warren’s signature achievement is the cre-
ation in 2011 of a body to protect consumers of financial services.
It has done good work, but has unusual powers, has at times
been heavy handed and has become a political football.
The other dubious philosophy is a vilification of business.
She underrates the dynamic power of markets to help middle-
class Americans, invisibly guiding the diverse and spontaneous
actions of people and firms, moving capital and labour from dy-
ing industries to growing ones and innovating at the expense of
lazy incumbents. Without that creative destruction, no amount
of government action can raise long-term living standards.Primary colours
Many presidents have taken positions in the primaries that they
pivoted away from as their party’s nominee. If Ms Warren were to
make it to the Oval Office in 15 months’ time, she would be con-
strained by the courts, the states and probably the Senate. The
immense size and depth of America’s economy means that no
individual, not even the one sitting in the White House, can easi-
ly change its nature. Nonetheless Ms Warren’s government-
heavy master-plan contains much to worry about. She needs to
find more room for the innovative and dynamic private sector
that has always been at the heart of American prosperity. 7A plan for American capitalism
The Democratic front-runner has too little time for markets or businessLeaders