An uncomfortable but profound question is being asked around Washington DC these days: has American capitalism failed, and if so, can it be rescued? This inquiry is central to a debate playing out in the heart of the U.S. political establishment as policymakers, experts, and others grapple with the geostrategic challenges of our time.

At the heart of this discussion is a small but increasingly influential center-right think tank, American Compass, and its founder, Oren Cass. A leading conservative domestic-policy wonk and former policy director for (now Senator) Mitt Romney’s 2012 presidential campaign, Cass started American Compass to “restore an economic consensus that emphasizes the importance of family, community, and industry to the nation’s liberty and prosperity.” Better yet, as described by the Washington Post when the think tank was first launched, Cass and his followers are mounting:

…a frontal assault on the most hallowed principle of modern conservative economic policy — that market transactions should be given preeminent weight when setting public policy. [...] Cass and his allies, however, stand for the opposite idea: only democratic politics permits the collective judgment of the people to be heard, distilled and implemented. That judgment has a healthy respect for markets and economic freedom, but it has the wisdom to know when liberty becomes license and when the freedom of some is injurious to the health of society. In those cases, Cass and American Compass hold, it is not only proper for society to intervene in the market but also necessary for it to do so.

In the three years since its founding, American Compass has come far. Just one week ago, the organization held a fully-attended forum within the Russell Senate Office building that saw the participation of four Republican senators (Tom Cotton, Marco Rubio, J.D. Vance, and Todd Young), packs of congressional staffers, numerous influential commentators, policy wonks, and more. It is worth emphasizing how significant this is: in U.S. politics, proximity to political power is de facto power in and of itself. That a small think tank can host such an event within the literal halls of power is no small feat.

At this event, Cass and his team gave out multiple copies of their recently completed and appropriately named handbook, Rebuilding American Capitalism: A Handbook for Conservative Policymakers. This 104-page tome, loaded with analyses and policy proposals covering a broad number of issues—globalization, industry, finance, family, education, labor—is both a political platform and a definitive answer to the question raised at the outset: yes, American capitalism has failed, and yes, it can be rescued.

All this is timely and of particular concern to foreign policy practitioners and American strategists, especially given the return of great power competition and the coming multipolar geopolitical environment.

Great Power Competition Requires Great Industrial Capacity

The cold reality is that strategic competition between great powers in the modern era requires not only ample resources—a large, healthy, and growing population; a strong agricultural base; access to key mineral resources—but also sufficient financial and industrial capabilities.

As history has advanced, great power competition has increasingly required greater technical expertise. Technological advancement means new innovations, devices, and weapons, which must be designed, built, maintained, and upgraded. Moreover, the production of all these requires a sufficiently large industrial base that must be supported, conserved, and prioritized. Ensuring a steady supply of technical experts and financing is thus also essential—and increasingly so—to great powers.

The totality of this dynamic was made most clear in the European World Wars of the twentieth century. Warfare relied not just on millions of armed and trained men, as has long been the historical norm, but also on a wide variety of vehicles, machines, and gadgets. All of these devices—themselves products of an inherently scarce supply of experts—in turn, relied upon vast manufacturing and logical systems of production: industrial-scale farming, mining, refining, fabrication, shipping, and so on, all of which had to be supported by a strong financial sector and credit-worthy government. This dynamic was just as clear throughout the Cold War: the United States’ primary advantage throughout the conflict, and the reason for much of its current global primacy, is because it led the world in technological development throughout the twentieth century, which itself was largely derived from its mammoth post-World War II industrial capacity and economic model.

This longstanding historical norm—the struggle over resources, productive capacity, and technical know-how—was broken with what may now be called the post-Cold War Interregnum. The United States, left as the world’s hegemon after the fall of the Soviet Union, chose to embark on a mission to promote and support an integrated globalized economy. The result, it was declared, would nominally be mutually beneficial to all participants, with economic liberalization giving way to political liberalization, the advance of democratic progress, human rights, and economic prosperity for all.

The Free Market Nightmare…

This dream failed to materialize. In the Foreword of Rebuilding American Capitalism, Cass bluntly describes what the neoliberal, overly pro-free market economic policy of the post-Cold War era has produced in practice:

Comparative advantage is supposed to allow a developed economy like America’s to focus on the most advanced technologies, but the U.S. trade balance in advanced technology products has swung from a $60 billion surplus in 1992 to a $190 billion deficit in 2020. Innovation is supposed to drive productivity but, in the manufacturing sector, productivity growth has turned negative, with factories producing less per worker in the early 2020s than the early 2010s.

The economic system’s malfunction has dire human consequences. Whereas 40 weeks of the typical male worker’s income in 1985 could provide the middle-class essentials for a family of four, by 2022 he needed 62 weeks of income—a problem, there being only 52 weeks in a year. Nearly half of Americans report having fewer children than they want and, outside the most highly educated and compensated households, affordability is the most frequently cited obstacle. The average American can no longer expect to earn more than his father did at the same age. Poorer regions can no longer expect to catch up with wealthier ones. The bottom 50% of households had less wealth in 2019 than in 1989, though the top 10% added $29 trillion. Life expectancy is falling.

The fundamental issue at hand is not capitalism itself. As Cass notes, “the first 200 years of American history, as a backwater colonial republic grew into a continent-spanning industrial colossus and home of the world’s middle class,” demonstrates that the economic model can function quite well. The problem, rather, in Cass’ words, is an ideological belief that took hold which posited that economic activity should occur with zero government involvement, based on the grounds of maximizing individual autonomy: “...free individuals exercising free choice in the market, each presumably able to optimize his own life. The failure of families to form reflected merely a preference for other pastimes.” People, in other words, vote with their wallets. The result, which has amounted to companies opting to off-short and out-source industry in the pursuit of greater efficiency and higher profits, justified by delivering lower costs to consumers, has been:

 …a disaster for the nation. Globalization crushed domestic industry and employment, leaving collapsed communities in its wake. Financialization shifted the economy’s center of gravity from Main Street to Wall Street, fueling an explosion in corporate profits alongside stagnating wages and declining investment. The decline of unions cost workers power in the market, voice in the workplace, and access to a vital source of communal support. These trends [...] contributed to rising inequality, slowing innovation, narrowing of opportunity, and loss of middle-class security.

Aside from devastating damage to Americans’ economic livelihoods and futures, the United States has also de facto surrendered away its industrial-technological capacity, and with it, the country’s ability to self-renew its competitive advantage. Off-shoring manufacturing has not only resulted in the loss of millions of jobs and falling productivity growth but also a decline in our ability to produce new technologies. To quote Sridhar Kota and Tom Mahoney, “once manufacturing departs from a country’s shores, engineering and production know-how leave as well, and then innovation ultimately follows.” Studies have shown this to be true, with spending on research and development moving abroad to be closer to production and engineering. With the departure of that industrial capacity goes not only America’s ability to produce needed armaments on a war footing but also its ability to innovate and its technological-military advantage.

The Department of Defense has likewise sounded the alarm on these developments. In their FY20 Industrial Capabilities Report, which transcribes the department’s “priority industrial base risks and vulnerabilities,” the Pentagon provides a stark warning:

Together, a U.S. business climate that has favored short-term shareholder earnings (versus longterm capital investment), deindustrialization, and an abstract, radical vision of “free trade,” without fair trade enforcement, have severely damaged America’s ability to arm itself today and in the future. Our national responses – off-shoring and out-sourcing – have been inadequate and ultimately self-defeating, especially with respect to the defense industrial base.