(7 of 11)
The reform of our economy must begin, alas, with taxes. The fact that America bears a smaller tax burden than other developed countries is not conclusive: perhaps the others are doing it wrong. Still, as a nation we are reluctant to pay for what we -- the sum of all our various constituencies and interest groups -- want. At the same time, we don't get adequate value for the taxes we do pay. So tax increases must be balanced by severe cuts in expenditures, especially entitlements for the better off, plus farm and other subsidies. But a mere split-the-difference deal on taxes will not be enough. We need to address the nature and structure of our government.
Industry has begun to recognize that the age of assembly-line mass production is over and that what has been called the second industrial revolution, based on the computer, involves smaller, flexible units with far fewer layers of middle management. Government, by contrast, is stuck in the political equivalent of the assembly-line, mass-production era -- insensitive, inflexible, overregulated and overstaffed, partly because Congress keeps mandating innumerable and conflicting functions. Even though it may seem impossible, we must have a long-range effort to reorganize our government machinery.
Not that the private sector is necessarily a model. In many ways American business has let America down. It has often been too bureaucratic, too complacent and unimaginative, too ready to ask for government help, too provincial and isolated from world markets. There are signs of revitalization: industrial productivity is rising slightly; the quality of many products is improving. But we have a long way to go. Moreover, the government will have to invest in America's crumbling infrastructure. This has been done in the past, without damaging our free market.
Ultimately, we must look anew at the interaction between public and private sectors. Coping with our social problems is more complex than the usual formula of more vs. less government intervention.
Conventional government intervention has largely failed, notably in the chaotic and counterproductive welfare system, which is at once too lax and too rigid. We have been more successful than is often realized in ending or alleviating certain kinds of poverty. The underclass, with its devastated family life, its single mothers and routine teenage pregnancies (among black teenagers, nearly 90% of babies are born out of wedlock), is a nightmare reproach to America. But it is also a relatively isolated phenomenon -- far more so than the poverty that festered behind the proud facades of Victorian England, for example. It requires separate, special treatment.
Private initiative must carry a larger share of responsibility, but in combination with more intelligent, imaginative and flexible government policies that tie social services to incentives for self-help. These may range from vouchers to enterprise zones to tenant ownership of housing projects. The principle of combining social responsibility with individual initiative, compassion with reward for effort, suggests that the U.S. must partially reinvent capitalism -- and do a more imaginative job of it than the heavily welfare-statist economies of Europe that are increasingly retreating from socialism.