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The Power and Limits of Federal Policy

Robert Litan - Former Director, Economic Studies, Brookings Institution
Ella Bell Smith - Professor of Business Administration, Tuck School of Business at Dartmouth
Matthew Slaughter - Paul Danos Dean of the Tuck School of Business at Dartmouth
Robert Lawrence - Albert L Williams Professor of International Trade and Investment, Harvard Kennedy School and Non-Resident Senior Fellow, The Peterson Institute for International Economics

The thoughts expressed in this Guest Opinion are those of the writer and do not necessarily reflect the views of S&P Global.

Published: October 21, 2021


This is the second chapter in a series of content related to Entrepreneurial Leadership Must Help Meet America’s 21st Century Challenges in a Post-Pandemic World

Chapter One: Introduction – Major 21st Century Post-Pandemic Challenges

Chapter Three: Entrepreneurial Leaders at Work

Chapter Four: Barriers to Social and Policy Entrepreneurs

Chapter Five: Reducing Barriers to Effective Social Policy and Policy Entrepreneurship

Chapter Six: Changing Mindsets

Join S&P Global Sustainable1 for the next episode in our ‘Beyond ESG’ series as we sit down with the authors of the report. Register here to join the discussion or receive the on-demand replay

It is tempting to believe that only the federal government can solve the four challenges just outlined. After all, as James Fallows and Deborah Fallows note in their important book, Our Towns, much of what has made America so successful today can be attributed to major federal initiatives.

“An astonishing amount of the public architecture of twenty-first-century America was laid down in a few Depression years in the 1930s, by the millions of people employed by the Works Progress Administration. The small airports we landed at were the result of mid-century defense-and-transportation building projects, as were the interstates we flew above. The libraries we found almost everywhere were result of both public and private investment. The grid-pattern fields of the farmland Midwest had been laid out by the rules of settlement from the earliest days of the republic. The practices that made them the most productive farmland in the world were crucially spurred by land-grant universities and agricultural-research schools. The wildlands ecosystems that have escaped development did so because of their protection as national parks or monuments.” [Fallows and Fallows, pp 396-97].

This is not all. Federal financing of R&D through the years has played a critical role in the development and commercialization of a wide range of technologies – including information and communications technology, energy, healthcare, transportation, agriculture – that characterize modern life [Singer, 2014]. Federal support was instrumental in vastly accelerating the development of vaccines against COVID. Federal legislation and institutions have stabilized our economy (deposit insurance, Federal Reserve lending at times of stress), facilitated home ownership, protected investors and consumers from fraud and all of us from environmental degradation, and through civil rights legislation, has been critical in helping to right the wrongs of slavery and the Jim Crow era, although clearly this last project is far from completed.

But our politics at the federal level are no longer what they once were. In the past, landmark initiatives like Social Security, Medicare, civil rights, and voting rights legislation were enacted with at least some bipartisan support, under presidents of both parties. Political polarization since then over national issues has made bipartisan Congressional action a rare event. For too many Americans, as we and others have noted, party affiliation has become our identity, turning politics into tribal warfare rather than a means for working together to address common problems.

To be sure, there are signs that despite these hurdles, some positive changes in federal policies can be made, even in some case without bipartisan support. The American Rescue Plan proposed by President Biden and enacted by Congress, along with earlier rescue or stimulus plans, have greatly cushioned the economic blow to tens of millions of deserving Americans arising out of the pandemic. But these one-off emergency measures seem unlikely to be repeated in a post-pandemic world, certainly at the scale that has been legislated thus far.

While the federal government can change some policies that affect progress toward meeting our challenges, there is much that the federal government alone cannot do. For example, landmark court decisions and federal civil rights legislation in the 1950s and 1960s formally ended legal discrimination in schooling, voting, housing, and the workplace for Blacks, and in the 1970s for women. But statutes do not necessarily change mindsets that impede equal opportunity. Moreover, the fortunes of Blacks and other minorities are also strongly affected by policies and practices – such as criminal law enforcement, education, and occupational licensing – which are made wholly or in large part at the state and local level, not in Washington.

Mindsets and behaviors are also greatly affected by broader “narratives,” as Yale’s Nobel-prize winning economist Robert Shiller has highlighted [Shiller, 2019]. For example, our politically polarized environment has fueled, and been fueled by, a “zero sum” narrative: if one group wins, the other party must lose. With zero sum thinking, the temptation grows for too many to blame their economic misfortune or stagnation on other some identifiable groups – on minorities, or on immigrants, or on the “top one percent” – rather than on larger economic forces, such as technological change, over which people have no control. Most disturbingly, in a zero-sum environment, blaming groups too easily turns into the anger and incivility that have increasingly infected our politics and even our personal relationships.

Is there any way out of this depressing, polarized cul-de-sac – that is, to live in a society and economy in which, in the memorable words of President John F. Kennedy, “a rising tide [truly] lifts all boats”? Or, to use Harvard’s political scientist Robert Putnam’s language, can our country get back to a “we” society (as in “we’re all in this together,” a positive sum narrative) from our current “I” mode (as in “what’s in it for me,” a zero-sum narrative). [Putnam].

We believe the answer is “yes”. But getting there does not depend, entirely or maybe even in large part, on the federal government coming to the rescue for reasons already given. Instead, we submit that a good portion of the answers – and we underscore the plural – lie with entrepreneurs throughout our public and private sectors, both for-profit and non-profit.