You may not realize it, but free-enterprise capitalism is a topic of national importance because over the past few years, it’s taken a beating: Two years ago, Forbes ran a story on “The demonization of American capitalism.” In May, TIME reported on “American capitalism’s great crisis.” In June, a Business Insider story said it was “Time for a better capitalism.”
The most discouraging headline came last April from The Washington Post: “A majority of millennials now reject capitalism.”
From small startup to today
American capitalism now faces a crisis. But how did we get here?
It’s a question that nags at me every day as chairman of Winsupply. Because for 61 years, free-enterprise capitalism has fueled our company’s philosophy, our business model and collective success.
In 1956, we were a little Dayton startup with five investors. Today, we’re a $3 billion wholesaler of construction materials. We distribute everything from faucets to furnaces, pipes to pumps, lighting to landscape irrigation. And because we now have 580 wholesaling locations in 45 states, we’re known as “The Winsupply Family of Companies.”
Free-enterprise capitalism has made it possible for hundreds of men and women to own a Winsupply location, create jobs and add value to our society. We call it the “Spirit of Opportunity.”
Our company was founded to help capable, hard-working people willing to risk their own money for rewards. These are brave people who believe in themselves. But they may not know enough about business and finance, or have enough money and resources, to compete successfully with other wholesalers. This idea of helping people is our purpose.
Our business model is based on three things: Equity partnerships. Local owners with local autonomy. And low-cost, centralized support services.
Remember those capable, hard-working people I mentioned? Almost all of them are equity owners of their own wholesaling location, with Winsupply as majority owner. Our interests are common. Because we share ownership, we share the risk, and the rewards. So we’re not a franchise, and we’re not family-owned.
Instead, almost every wholesaling location is an independent corporation with a local owner who enjoys local autonomy. Local owners are required to invest in their own individual companies. The risks they take — and the rewards they make — create in them a wonderful feeling called earned success.
The third element of our business model is low-cost, centralized support services. Local companies pay a small fee to Winsupply for services like finance, accounting, payroll, marketing, IT and training. That way, local companies can spend more time making sales and serving their customers.
When you put it all together, Winsupply’s philosophy and business model practically eliminate every reason why many small businesses fail, like lack of capital, poor operations, bad planning and weak management.
Today, our philosophy and business model are working for 5,600 people nationwide. What makes it all possible is American capitalism.
Why are so many down on capitalism?
So why has free-enterprise capitalism taken such a beating? After all, our democracy was founded on it. When our Founders wrote the Declaration of Independence, a word that means freedom, they promised we’d have certain rights, including the right to pursue happiness.
But what does that mean?
Arthur Brooks wrote a book called “The Road to Freedom,” which says the pursuit of happiness is really the freedom to earn success. It’s the ability to create value with your life, or in the lives of others.
Free enterprise makes earned success possible. I see it every day with our local owners at Winsupply. So many times, we’ve hired people who were barely getting by — people who were flipping burgers, painting houses or pouring concrete — and gave them an opportunity to drive a truck or work in the warehouse for a while, get promoted and earn their success as president of their own wholesaling location.
These people maximized their opportunity. Today, many of them are millionaires.
I’ve spoken more than once with Sen. Marco Rubio of Florida. He says free enterprise has lifted more people out of poverty than all of the government’s anti-poverty programs combined.
Remember why the colonists came to America? Yes, they wanted the freedom to practice their religion. But they also wanted economic opportunity to escape poverty. They wanted to be rewarded for their hard work, not their birthright. They wanted to earn their success.
All this was possible because of the Declaration of Independence and free-enterprise capitalism. As a result, America thrived.
Taking a look at history
Think about the Industrial Revolution, which brought us many new and wonderful things. Affordable cars from Henry Ford. Telephones from Alexander Graham Bell. Air-conditioning from Willis Carrier.
Go to Carillon Historical Park for a reminder about what Dayton’s free-enterprise capitalists brought to the world. The first powered and controlled airplane from the Wright brothers. The first electric self-starter from Charles Kettering. The first pop-top can from Ermal Fraze.
Inventions like these made life better for all of us. Did free-enterprise capitalists profit from their ventures? Of course. But so did our entire society, because the value we gained from these inventions far surpassed the money we paid for them.
Free-enterprise capitalists created new opportunities for workers from every class of society. Look at the 1950s and ’60s. The golden era of American capitalism was the golden age of economic growth. Thanks to the GI Bill, workers were well-educated and gainfully employed with money to spend - on homes, cars, TVs and household gadgets.
All this consumer demand forced businesses to expand and hire more workers — so the middle class boomed. As more people began their individual pursuits of happiness, America became the most prosperous nation in the world.
Has free-enterprise capitalism been perfect? Certainly not. In the 1700s, we saw the evils of child labor. In the 1800s, monopolies stifled competition. In the 1900s, we felt the unjust dominance of big business over workers.
Because nothing in life is perfect — not even democracy. Winston Churchill once said: “Democracy is the worst form of government, except for all the others.” The same is probably true for free-enterprise capitalism. It’s the best economic system on earth - compared to all the others.
There’s plenty of confusion
But today, we have a problem.
In spite of everything American capitalism has done to make our lives better, some Americans have lost faith in it.
It’s being blamed for our economic problems, our weakening middle class, our distrust of businesses and the people who run them. People say things like, “Business and government are irresponsible.” “CEOs make too much money compared to workers.” And “income inequality is rising.”
Surveys found that more Americans believe that the rich get richer, and the poor get poorer, in a capitalistic system. Young people are especially disillusioned.
When you look at the world through their eyes, you know why they think this way. Since the Great Recession, young people have seen their parents lose jobs. Homes foreclosed upon. College debt skyrocketing. For them, surviving is the new American Dream.
But when you dig a little deeper into the national narrative and all the survey data, you find a lot of confusion. Here’s what the surveys revealed:
* Many people, especially young people, aren’t sure what free-enterprise capitalism really is, and how it really works.
* “Free enterprise” and “capitalism” now mean different things to different people.
Some people don’t know that capitalism is about ownership and free enterprise is about freedom:
* Capitalism means private individuals, not the government, own what’s needed to make and move products. Things like raw material, land, factories and trucks.
* Free enterprise means that private business is free to compete and earn a profit, and government won’t interfere, except for regulations needed to protect the public interest.
Because of all this confusion, the experts took a closer look at the data and concluded that Americans don't reject the principles of free-enterprise capitalism. What they do reject are the modern practices of free-enterprise capitalism. They reject what they see going on in America today.
That’s because starting in the 1970s, our practices of free-enterprise capitalism started to change.
How did we get here?
Four things happened.
First, we saw more crony capitalism. Today, some people believe crony capitalism is all capitalism can ever be, because it’s all they see in the news. They see companies buying favors from politicians to affect regulation and taxes. Companies establishing monopolies. Companies asking government for help so they can eliminate competitors.
Second, since the 1970s, our policies changed. America moved from a time of low government regulations, low spending and low debt, to higher government regulations, higher spending and higher debt.
All of us can agree that certain regulations are needed; we rely on the Federal Aviation Administration and the Food and Drug Administration for our safety and health. But too many regulations stifle the flow of goods and services, and block companies from starting or expanding to create new jobs. Think about it like a football game: If you had a penalty flag on every play, you’d never get the ball across the goal line!
Third, over the past 40 years, shareholders have gained more power, and employees have lost power. We’ve all heard the shareholder’s voice grow louder. And we’ve all seen companies make short-sighted decisions to maximize shareholder growth. At the same time, many companies started thinking of their employees as “costs.” So they tried to pay them as little as possible. All this has upset the balance of interests among shareholders, employees, customers and the public that makes free-enterprise capitalism work best.
Fourth, we’re now dealing with financialization. The word sounds intimidating, but its meaning is clear.
In the past, the purpose of finance was to facilitate business, to fund new ideas and projects that created jobs and raised wages. That’s what grows our economy. But today, finance has gained more power. Some say too much power. Instead of funding innovation for the long run, more money in the system now goes toward trading and speculation for short-term gains - which does little to grow our economy.
Practices like these are problems because they poison the principles of free-enterprise capitalism.
If you studied economics, you know American economist Milton Friedman: a champion of free-enterprise capitalism. If Friedman were alive today, he’d be troubled to hear that our economic freedom is on the decline.
In the past, America was the sixth freest economy in the world. But last year, America fell to 11th because of the way we’re practicing free-enterprise capitalism today.
If Friedman taught us one thing, it was this: Because good economic policy strengthens democracy, it strengthens freedom. That’s why I believe our declining economic freedom is not a political problem, but an American problem. First, because it weakens our democracy. And second, because it breaks the promises made by our Founders.
To restore America’s faith and pride in free-enterprise capitalism, we must change our current practices.
We need to reject crony capitalism at every level. We need to support policies that encourage free markets. We need to rebalance the interests of stockholders, employees, customers and the public. And we need to right the wrongs of financialization.
Seeking solutions for the future
But our role can go further.
First, we can champion free-enterprise capitalism by what we do.
At Winsupply, our philosophy and our business model are growing new entrepreneurs every day. Since most organizations aren’t set up to implement a business model like Winsupply’s, what else can you do to champion free-enterprise capitalism and help people maximize their opportunities?
Some companies, like Henny Penny in Eaton, have started ESOPs, employee stock ownership plans. ESOPs create more opportunity for every employee to do a good job, because the better the company does, the better the employees do.
Government has a role, too. Last fall, Montgomery County opened its new Business Solutions Center on Cincinnati Street, where businesses can get new support services to succeed and grow. The county worked with partners like the Dayton Chamber and Sinclair Community College.
Second, we can champion free-enterprise capitalism by what we say. We can, and should, tell our own success stories of free-enterprise capitalism.
At Winsupply, we tell our story every day to the media, to vendors and to customers on that very first sales call, because we believe the Spirit of Opportunity makes our customer’s experience better. Whether you’re a for-profit or nonprofit business, your business has a story.
Just look at Goodwill Easter Seals of the Miami Valley, which has introduced Miami Valley Works, the new service that helps willing and capable people living in poverty improve their lives, find full-time work, provide for their families and earn their success.
What’s your organization doing to create jobs and opportunity for others? Tell that story.
We must do a better job explaining how American capitalism creates value for all of us, while acknowledging that its current practices need reform.
Last April, Jeff Immelt, the chairman and CEO of General Electric, took a bold stand for free-enterprise capitalism in The Washington Post. He wrote: “GE has been in business for 124 years … We take risks, invest, innovate and produce in ways that today sustain 125,000 U.S. jobs. … We’re in the business of building real things and generating real growth for a nation that needs it now more than ever.”
Back in 1933, General Electric became one of the first tenants at Rockefeller Center in New York, which John Jr. built long after he’d begun his generous work to preserve our National Parks.
Today, inscribed on a tablet facing Rockefeller Center, is John Jr.’s famous life principle, which reads: “I believe that every right implies a responsibility; every opportunity, an obligation; every possession, a duty.”
This, I believe, is a fitting principle for every free-enterprise capitalist today.
I also believe that principle inspired Rockefeller to support and defend our National Parks, just as it should inspire all of us to support and defend our right to pursue happiness - to earn our own success! - given to us by our Founders.
That’s because free-enterprise capitalism is the American Dream - our national Spirit of Opportunity — and a gift all of us must work to protect.
Every chance we get.
Rick Schwartz is Chairman of Winsupply, headquartered in Moraine.