Unleashing Capitalism

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Unleashing Capitalism

• Russell S. Sobel, Ph.D.
• Professor of Economics
• James Clark Coffman Distinguished Chair
• West Virginia University

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Prosperity Capitalism
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Rankings of Reliance on Capitalism
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North Korea vs. South Korea
Per Capita Income 1,800
Per Capita Income 24,200
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We are less free market than Estonia and Latvia
States also Differ in Reliance on Capitalism
West Virginia Ranks 50th in Capitalism
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We Are Falling Behind Other States
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How Can Policy be Reformed to Better Embrace
Capitalism and Promote Long-Run Growth?
Today Ill give a menu of reforms in 5 major
areas
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1. Lower Taxes Regulations on Productive
Activities

• Examples
• Capital Investment
• Business franchise tax
• Personal property tax on
• inventory, machinery
• and equipment
• Labor Force
• - Welfare Reform
• Earned Income Spendable Income

0 6,000 12,000
11,026 11,014 15,286
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2. Discourage Unproductive Uses of Resources

• (e.g., excessive lobbying or lawsuit abuse)
• Examples
• Legal Reform
• Venue Requirements
• Joint Several Liability Reform
• End Partisan Election of Judges
• Avoid targeted taxes, credits, subsidies - they
  encourage lobbying
  

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3. Rely on Entrepreneurial Discovery, Not
Central Planning, to Guide the State Economy

• An economy undergoes continuous change
• some industries fail, others are born
• Capitalism critically relies on entrepreneurship
  and the profit and loss system to direct this
  process
  
• This process cannot be centrally planned or
  directed effectively - it must be discovered
  within the marketplace

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The Reason Because Nobody Knows

• Ken Olson, chairman/founder of Digital Equipment
  Corp., 1977.
  
• "There is no reason anyone would want a computer
  in their home."
  
• Fred Smiths (FedEx) Yale University Senior
  Project Grade Remark
  
• "The concept is interesting and well-formed, but
  in order to earn better than a 'C,' the idea must
  be feasible."

Would You Have Invested? Microsoft Corporation,
1978

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To Promote Unleash Entrepreneurship

• Avoid interfering with the profit/loss mechanism
• Avoid regulating prices or wages
• Dont impose barriers to entering occupations
  industries
  
• Privatize or induce Choice whenever possible

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4. Reduce Government Size, Growth, and
Centralization

• Goal should be to increase the share of our state
  economy controlled through the private sector
  
• An important first step is to constrain future
  state spending growth
  
• Overall spending can also be reduced and made
  more effective by decentralizing spending to
  local governments (WV is 2nd most centralized
  state)

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5. Increase the Security of Property Rights
Impose Checks on the Regulatory Environment

• Restrict the use of eminent domain for private
  redevelopment (post-Kelo)
  
• (H.B. 4048 was passed in 2006 but it didnt go
  far enough)
  
• Regulations should be subject to cost-benefit
  analysis (and include sunset provisions based on
  proof of effectiveness)
  
• - Ex. Mine Safety, ATV

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Thank You / QA
Contact Information Russell S. Sobel, Ph.D. C
offman Distinguished Chair Dept. of Economics, WV
U
Russell.Sobel_at_mail.wvu.edu [phone]