For decades, Americans were told that globalization and free markets would deliver broadly shared prosperity. Instead, many saw stagnant wages, hollowed-out communities, and a growing concentration of wealth and power. The backlash was inevitable. But the real failure was not capitalism itself. It was the corruption of competition and the establishment’s generations-long indifference to the working class it left behind. That disregard didn’t just crater trust in institutions; it fueled populist backlash across the political spectrum, with anti-establishment anger now reshaping American politics.
Two truths define the American economic dilemma. First: competitive capitalism remains history’s most powerful engine for wealth creation, driving greater aggregate prosperity over the past two centuries than perhaps any other economic system. But averages are dangerous fictions; a man can easily drown in a lake that is, on average, two feet deep.
Second: the laissez-faire ideology that achieved near-religious status in recent decades has mutated into something closer to crony capitalism than genuine market competition.
Free markets do not emerge naturally; they are enforced political constructs. If markets work, it is because rules make them work. In American political rhetoric, faith in markets was often distorted into the fiction that the government’s best role was total noninterference. But Adam Smith’s real insight was not that markets should be left alone, but that competition disciplines self-interest into socially productive outcomes. Properly structured, the system aligns private ambition with public benefit: entrepreneurs profit by creating products and services consumers prefer over competing alternatives. It is the dynamic of competition that results in consumer surplus.
A fundamental principle in Smith’s model is that entrepreneurs must play fairly under a set of transparent, agreed-upon rules. Ironically, our crony capitalism model depends on the precise opposite of what Smith had in mind: unfairly advantaged producers raising structural obstacles to quash the very competition that benefits consumers. America’s most powerful corporations no longer win by competing. They win by rewriting the rules of competition. This is what drives today’s crisis of democratic legitimacy.
Markets fail in predictable ways. That is why government intervention is not a betrayal of capitalism, but often a prerequisite for making it work. The most common market failures are:
- Information asymmetry. Markets break when participants operate with radically unequal information. That is why institutions like the FDA, FTC, and SEC exist: to reduce deception, protect consumers, and preserve trust.
- Externalities. Firms maximize profits by widening the gap between revenues and costs. But when some costs—such as carbon emissions—are shifted onto society, markets stop pricing reality. This is not just a moral failure—it is an economic distortion. If firms were required to account for external costs, capitalism’s innovation engine would race to solve the problem. In such a system, the winning firm would be the one that delivers value with the lowest real social cost. Properly designed regulation could align capitalist incentives with climate solutions.
- Underinvestment in public goods. Some goods are chronically underprovided by markets because their benefits are shared too broadly to be captured privately. Infrastructure, clean air and water, parks, national security, emergency services, and public education all fall into this category. Few public investments have delivered returns as consistently as education, which produces more productive citizens and reduces long-term social costs.
A healthy capitalist system should also serve the public good. But this balance collapses when dominant firms evade the costs they impose on society while simultaneously shaping the political rules meant to constrain them. At that point, the interests of economic elites diverge from those of the public—even if GDP keeps rising. Left unchecked, that divergence only widens. If capitalism becomes merely a mechanism for incumbents to privatize gains while socializing costs, collapse is not a bug. It is the logical endpoint. After all, what good is bragging about a rising GDP while so many of our citizens are drowning?
Seth David Radwell is the author of “American Schism: How the Two Enlightenments Hold the Secret to Healing Our Nation,” winner of last year’s International Book Award for Best General Nonfiction. He is a frequent contributor as a political analyst and speaker within the business community and on college campuses both in the U.S. and abroad.
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