A word from the president: Defense of capitalism

By: Margie Brown, CIRI president and CEO

Last month I wrote in this column that the first step toward becoming a good corporate citizen is to be a good business. Companies must be profitable over the long term to sustainably benefit their communities by paying wages, dividends, taxes and other spending, including charitable donations.

That is how capitalism and free enterprise works. Private individuals and corporations go into business and make decisions about how to invest their money and labor based upon market conditions of supply, demand, price and distribution – and hopefully earn a profit. These decisions ultimately determine if enough profit is earned to stay in business.

History demonstrates that over the long-term, capitalism is far and away the most efficient way to organize an economy so that it efficiently allocates resources, matches supply with demand and creates wealth by rewarding hard work, ingenuity and innovation. China, for example, opened its markets 30 years ago and quickly grew from a developing nation into the world’s second biggest economy today. And Cuban leaders announced this month that after 50 years they are giving up on their failed economic system and instituting capitalist markets and private enterprise.

Unfortunately, while China and Cuba are taking steps to embrace a new economic system, it seems many Americans are growing increasingly wary and distrustful of capitalism and free enterprise. It is easy to understand these feelings. Our nation has suffered through an economic downturn of historic proportions, a downturn from which we have not fully recovered. We have high unemployment, home foreclosures, tight credit and other calamities — all on top of a looming national debt crisis – and all within our free enterprise system.

Clearly, the very risky business practices that some businesses utilized contributed to our current economic condition. And while public confidence in these businesses (and the free enterprise system that allowed them to grow so huge) is shaken, I believe mistrust of capitalism is misguided. Many of our current economic problems can be traced back to public policies that rewarded short-term profits and ignored long-term costs. In spite of this, capitalism remains the key to our nation’s economic recovery because it is the best, fastest and only way to motivate private investment that maximizes long-term value creation. Government does not have the resources to rebuild our economy. Consequently, government’s challenge is to craft and implement public policies and regulations that align the country’s long-term social and economic objectives with financial rewards.

The Alaska Native Claims Settlement Act, which became law almost 40 years ago, has been called a national experiment on a truly grand scale. It uses capitalism and the corporate business model to shape the federal government’s relationship with Alaska Native people. Alaska Native and congressional leaders were unified in their belief that ANCSA should not include reservations or sustained government oversight, intervention, grants, allocations or handouts that fail to incentivize permanent solutions and rely upon political will that can change with each election cycle. Instead, they built ANCSA upon a capitalist business model that offers opportunities for development and increasing value for generations of stakeholders in the form of dividends, jobs and economic growth.

The ANCSA drafters are not alone in their view that capitalism is the best way to ensure economic justice, particularly for indigenous people who are often left out and side-lined from economic prosperity. The distinguished and talented economist, Hernando de Soto, president of the Institute for Liberty and Democracy in Peru and author of the book The Mystery of Capital, wrote of capitalism: “I am not a die-hard capitalist. I do not view capitalism as credo”. He goes on to say that to achieve the goals of equal economic opportunity that includes indigenous people “—capitalism is the only game in town. It is the only system we know that provides us with the tools required to create massive surplus value.”

The ANCSA experiment of using the corporate model and free enterprise to settle indigenous land claims and combat social problems associated with poverty is demonstrating that capitalism works over the long term. CIRI and other Alaska Native corporations have persistently focused on long-term growth and profitability. And despite the recession, changing political landscapes and many other challenges, they are making progress, helping to sustain the Alaska economy and delivering long-term value.

Alaska Native people are using capitalism and the American economic system to build a sustainable future.