Capitalism Isn't Working for the Poor. Let's Try Something Else

Newsweek

09-05-2025

The end of the Cold War made clear the triumph of capitalism over other economic systems. But in the decades since, the modern form of American-style capitalism has been showing some cracks. American incomes for the bottom 25 percent haven't grown nearly as fast as they have for the top 25 percent. The bottom 25 percent are not much better off than they were 40 years ago and are even worse off than the bottom 25 percent in some countries with a less robust free market.
To placate lower income voters, politicians keep tweaking capitalism to redistribute wealth to those at the bottom. This has come in the form of more progressive taxes, subsidized health care and housing, food stamps, higher minimum wages and child tax credits. All of these are intended to level the playing field, but they also function as a parking brake on free markets, which ultimately diminishes the system's economic potential.
It's time to admit that our "one size fits all" capitalist system isn't working for everyone. We should fix it; not with even more tweaks or a European-style welfare state, but with a two-track system that provides a free-market system for those who thrive in it and another system for those who don't.
Workers gather to hear Senator Bernie Sanders (I-VT) speak to workers at a press conference to reintroduce the Raise the Wage Act at the U.S. Capitol on April 8.
Workers gather to hear Senator Bernie Sanders (I-VT) speak to workers at a press conference to reintroduce the Raise the Wage Act at the U.S. Capitol on April 8.for SEIU
The current 100 percent free-market system could be replaced by a new 70-30 system, where 70 percent or more of workforce participants remain in the free market and up to 30 percent of the workforce are given a stabilized income.
This two-track system is similar to, but distinct from, a Universal Basic Income because it isn't universal—it would be offered as an option for those Americans who prefer security to taking their chances in the free market and would only be available to people who work. This two-part system would stabilize the incomes and improve the well-being of lower income people who opt in to the system, while liberating the free market system in the remainder of the economy to maximize growth and economic potential.
The stabilized income would start around $30,000 and increase to over $40,000 by the age of retirement. Those workers receiving it could work for the government or in the private sector, but in either case, they would be paid by the government. If they worked for a private employer, the employer would pay the government the market wage for the employee, and the government would pay the worker their stabilized income amount. The government would absorb or benefit from any difference.
At age 20, young Americans would choose whether they want to be in the free-market system or the stabilized income system. Enrollment in either system would be voluntary based on individual preference, subject to the maintenance of the roughly 70 percent to 30 percent workforce breakdown. Before age 30, workers would have the option of switching systems once. After 30, switching would be possible, but expensive. Each year the stabilized income amount would be adjusted for new entrants to keep the number of participants between 25 percent and 30 percent of the workforce.
Stabilized income participants must be working or looking for work to receive their payments.
Someone could remain in the program and receive the stabilized income for up to a year between jobs, but after that would enter the welfare or disability system. In that respect, this program would act as unemployment insurance, but only for a maximum of one year. Those who are unable to work at all would remain in our current welfare or disability systems.
Non-dynamic modeling indicates the stabilized income system would cost the government $800 billion in additional payouts annually. But it would save $265 billion from eliminating social assistance programs for the stabilized income participants who would no longer receive unemployment insurance, nutritional assistance and child tax credits. Some of these subsidies could be reduced or eliminated, too, for the free market participants. For instance, unemployment insurance could be revamped and offered to people in the free-market system up to a certain annual income–perhaps $75,000. People on the free-market track would no longer be able to take advantage of food stamps or child tax credits. But there could be a safety net provision by which people who are failing in the free-market system could revert to the stabilized income system if they meet certain criteria .
Dynamic modeling will also likely show further reductions in government costs and increased revenues from relieving the free market system of constant attempts to make it fairer. Even if there are no further benefits, $535 billion a year, or less than 2 percent of GDP, seems a small price to pay for a large improvement in well-being for 25 percent to 30 percent of Americans. Ideally, the fairness dividend brings benefits beyond economics and results in a more stable political system, as voting "pocketbook issues" will no longer be as divisive or high stakes.
The time is right for a uniquely American adjustment to our aging "one-size-fits-all" capitalist system. The "welfare states" in Europe are 40 years ahead of the U.S. in trying to force more fairness into free markets—and it's not working. GDP per capita in the large European economies is 25 percent to 40 percent lower than in the U.S. and falling farther behind every year. Adjusting to a two-track economy, preserving a strong majority free-market system with a minority stabilized-income base will continue to foster growth while reducing income inequality and its corrosive cultural and political effects.
Thomas C. Foley is a former U.S. ambassador to Ireland under George W. Bush, a former GOP candidate for Connecticut governor, and chairman of NTC Group.
The views expressed in this article are the writer's own.