Inaugural Report on the Health of Democratic Capitalism

James Feinerman is James and Catherine Denny Chair in Democratic Capitalism, Kelsey Harrison is Program Coordinator for the Denny Center for Democratic Capitalism, and Bruce Shaw is Executive Director of the Denny Center for Democratic Capitalism at Georgetown Law. This post is based on a report from the Denny Center for Democratic Capitalism authored by Mr. Feinerman, Ms. Harrison, Mr. Shaw, Duncan Hobbs, Jay Shambaugh, and Michael Strain.

The goal of the Denny Center Inaugural Report on the Health of Democratic Capitalism is to evaluate how well the benefits of free market capitalism are balanced with the needs and expectations of a democratic society, focusing primarily on the United States.

While almost everyone agrees that free market capitalism is the most efficient wealth creation system, reconciling the benefits of capitalism with broader societal needs and aspirations is a perennial tug of war. The Denny Center was founded on the belief that maintaining balance between the two is critical to the future of both capitalism and a flourishing democratic society


Since the Industrial Revolution, people around the world are better off in a number of ways. Over the last 200 years, annual gross domestic product (GDP) per capita in western economies has grown by a multiple of almost 50 times—from $1,100 to $50,000; the average global life expectancy has more than doubled from 29 to 72 years old; and the percentage of the world’s population living in extreme poverty has shrunk from 84% to less than 10%. [1]

Despite a long-run track record of success, free market capitalism is under pressure on multiple fronts, motivating some to argue that the system has run its course—and that it’s time to consider alternatives. However, based on the Denny Center’s core research, (conducted with support from leading economists [2]) we believe that democratic capitalism is still the world’s best option, though there are real problems that need to be addressed. In the complete publication we have used a clinical approach to study objective data that sheds light on democratic capitalism’s overall health, confirming where the system continues to perform well, and also identifying where it’s falling short. The report then summarizes critical questions to focus future research and potential paths forward.

Denny Center Research Process

To construct the report, the Denny Center team (a) identified and grouped vital statistics relevant to the health of democratic capitalism in the U.S., (b) recorded U.S. trends for each vital statistic dataset, and (c) compared a subset of these vital statistic results to those of a handful of other developed countries. [3]

Based on these observations, we have summarized key outstanding questions and areas for further research that highlight potential paths forward. In addition, we have also compiled suggested readings for anyone desiring to take a deeper dive.

Initial Findings

In the Vital Statistics section of the report, we have organized the datasets and accompanying descriptions into five categories: (1) efficacy and vitality, (2) fairness and social mobility, (3) social well-being and stability, (4) business environment, and (5) international comparisons. The first four dataset groups focus on trends in the U.S. with the fifth group set aside for select international comparisons.

Below we summarize our findings by category:

  • Efficacy & vitality: Does our economic system generate growing total wealth? The U.S. economic system continues to generate growing total wealth and to produce new innovations—but the rate of growth is slowing down, and inputs to GDP growth face potentially daunting headwinds. A significant long-term issue is the declining fertility rate in the developed world and its potential impact on the future working age population, assuming other factors that affect country-by-country working age population remain fairly stable.
  • Fairness & social mobility: Does the system address the well-being of all members of society, or does it favor distinct groups? Despite recent economic shocks, the U.S. economy continues to provide jobs and a growing level of income for most members of society. However, the overall labor share of GDP is decreasing, income is growing more slowly for most workers than it is for the very top earners, and upward mobility between generations has decreased significantly since the mid-twentieth century as more parents of college graduates are college graduates themselves.
  • Social well-being & stability: How does the system strengthen (or weaken) society more broadly? In several ways, our economic system benefits society broadly: a smaller share of citizens live in poverty, Americans are attaining higher education levels than in the past, home ownership is on the rise, and CO2 emissions per capita are decreasing. In contrast, life expectancy has stalled, the cost of education and level of student debt have grown, the public’s views of business and capitalism are growing less favorable, trust has declined, and efforts to reduce emissions are widely considered to be insufficient to reduce the impacts of climate change.
  • Business environment: What is the current status and nature of free market competition, and how well is the business community positioned to address current pressures on the system? Business sector concentration is increasing and in some sectors is threatening the essential beneficial effects of market competition. At the same time, businesses are investing less, paying out more in dividends, and repurchasing shares in record amounts; these trends may reflect a lack of long-term time horizons in business decision-making. [4]

Also, government regulatory spending continues to increase. In addition, more business leaders are ambitiously calling for “profits with a purpose” and publicly embracing the concept of stakeholder capitalism, though it’s unclear what real follow-through looks like, and if/when it will happen at scale. In addition, a large percentage of shareholders have no voice in how the shares they own in equity funds are voted, which may distort the messages sent to boards by shareholders.

  • International comparisons: How does the U.S. compare to other democratic economies, and what can we learn from the differences? Compared to other democratic economies, the U.S. is holding its own in terms of GDP growth, labor compensation as a share of GDP, reduction in CO2 emissions per capita, and its citizens’ views of their own well-being. However, the U.S. is losing ground when it comes to life expectancy, labor force participation even when jobs are available, income inequality (as measured by the Gini Coefficient), social mobility, and total emissions. On top of that, U.S. government interventions have 30-50% less impact on the Gini measure of inequality than programs in other developed democratic economies which may not condition benefits on employment.

Key Questions for Paths Forward

The vital statistic datasets raise many more questions than the first installment of our report can address, but we highlight the following questions given their urgency and the long-term nature of likely solutions.

  • Is future overall GDP growth under threat (i.e., shrinking fertility rates in the developed world undermining future working age population)? And if yes, what options exist to counteract the potential impact? Can other inputs change enough to help (immigration, worker productivity, technical innovation)? Might the shorter-term focus of a growing number of companies (often revealed by declining capital investment and increased share repurchases) also be a threat to future GDP growth?
  • What are the root causes of the growing gap in incomes, and can they be addressed in a way that improves equity but does not discourage investment and innovation? For example, what can be done to reign in CEO compensation vis-a-vis average worker pay while keeping top-level talent engaged and motivated?
  • What role has globalization played in the lack of income growth for the average U.S. worker? Is there a way to strengthen local communities by mitigating the globalization effects on U.S. workers without significant impact to overall productivity and efficiency?
  • Why has upward social mobility slowed significantly in the U.S., and how can business, government, and society work together to reverse the trend? Are there examples of upward mobility improving in other settings, and if yes, what can we learn? Given the increase in college graduates across generations, are we measuring mobility correctly?
  • Why are many business sectors becoming more concentrated, and is concentration leading to lower quality market competition that will ultimately undermine the market/society balance? Why has the number of public companies in the U.S. dropped by almost 50% over the last 25 years, and what might the consequences be? Are consistent increases in lobby spending an indication that elements of crony capitalism are contributing to lower quality of competition?
  • How can corporations generate value for shareholders but also address the needs of the other stakeholders? Are there value-creating rationales that can strengthen the purpose and profit movement? How can boards and management teams properly measure long-term benefits (and costs) of ESG initiatives? Should society expect something in return for providing corporate shareholders with limited liability? What steps can companies take to embrace a broader view of business’s role in society that doesn’t sacrifice profitability, innovation and investment? How can shareholders be persuaded to rethink their current high volume, autopilot-engagement with boards and companies?

Areas for Further Research

Democratic capitalism is under pressure, and we should not shy away from identifying problems that need to be addressed. Using data to better understand the problems within the system and identify potential solutions can help improve and strengthen both capitalism and democratic society.

At the same time, we should not let a clear-eyed acknowledgment of real problems cause us to forget the many benefits of free market capitalism. When combined with various forms of democratic societies built upon disciplined moral/cultural frameworks, the market economy continues to support human flourishing around the world.

Therefore, with the aim of reconciling the market economy’s many benefits with society’s values and needs, we recommend the following topics as areas that merit further research to (1) better define problem areas, (2) verify the existence and extent of problems and sub-issues, and (3) propose potential solutions.

  • Threats to future overall GDP growth, including declining fertility rates and short-term corporate behaviors
  • Root causes of the growing gaps in incomes
  • Unintended impacts of globalization on local communities and workers
  • Excessive levels of executive compensation
  • Slowdown in upward social mobility outcomes
  • Decreasing quality of market competition and apparent rise of crony capitalism
  • Increasing government regulatory budgets and implications for business and lobby spending
  • Lack of value-creating rationales and tangible actions for corporate boards and management teams that better integrate needs of all stakeholders in long-term strategy and which do not impair compensation fairness for employees or discourage investment by shareholders
  • Missing incentives and common measurement protocols for collective stewardship of natural resources and/or rationale for industry self-regulation
  • Inadequate attention to society’s quid pro quo for corporate shareholder limited liability
  • Apparent concession by shareholders of the inherent right to vote shares held by fiduciaries on their behalf

The complete publication, including footnotes, is available here.


1Our World in Data, “GDP per capita over the long run, 1820-2018”, using a 60/40 weighting for “Western Offshoot Countries” and “Western Europe” data points, respectively; “Rising life expectancy around the world, 1820-2018”; “Share of the world population living in absolute poverty, 1820-2015”, citing Bourguignon and Morrison (2002), Inequality among World Citizens, in the American Economic Review; and 1981-2015 World Bank (PovcalNet). Retrieved from:,, and back)

2Jay Shambaugh (Brookings Institution, George Washington University) and Michael Strain (American Enterprise Institute), with additional commentary by Betsey Stevenson (University of Michigan).(go back)

3Australia, France, Germany, Japan and the United Kingdom.(go back)

4Business behavior of this sort would normally indicate a lack of long-term thinking in the boardroom, but we use the word “may” to give boards and management teams the benefit of the doubt.(go back)

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