Robert F. Agostinelli is the co-founder of Rhone, a private-equity firm based in New York, Paris and London. He previously was senior managing director at Lazard Freres, with responsibility for its international-banking business. Before that, he founded Goldman Sachs’ international mergers-and-acquisitions operation in London and worked for Jacob Rothschild. A generous philanthropist, Mr. Agostinelli is active in charities that support military veterans, especially the wounded, and their families. He is on the board of directors of National Review, among other respected institutions.
Decker: We both grew up in company towns on the Great Lakes and were raised believing the business of America is business. It now increasingly seems that government is the senior partner in the public-private-sector relationship. How is today’s out-of-control bureaucracy a drag on U.S. competitiveness and the entrepreneurial spirit that made this country great?
Agostinelli: Brett, it is true we both had a similar formation. In Rochester, N.Y., like in your Michigan, in the spreading suburbs, middle-class wealth and upward mobility abounded. Growing up in the postwar boom, you burst out of the house in the morning and jumped on your bike, looking to the horizon where there was no limit to opportunities.
Progressives have taken our tradition of optimism and belief in the individual and perverted it into an ideology based on pessimism and skepticism of the heritage handed down by our nation’s Founders. This is a form of social disease with paralyzing effects on our freedom and prosperity. The bureaucratic encroachment on our daily lives is primarily responsible for hindering growth and opportunity. While there are some limited regulations which are necessary for free markets to operate, and certain institutions — like the Securities and Exchange Commission — can be effective, government is, for the most part, a drain on our competitiveness.
Government is a threat to a sound economy because the fuel to feed Big Brother has only one source: the private sector. The double whammy comes in two forms, taxation and debt. On top of this, miles of red tape place limits on the boundaries of our success and force myopic preferences on consumers and manufacturers. Whether it is green-energy programs, restrictions on energy exploration or albatrosses like the aptly named Dodd-Frank finance bill, the leftist will is imposed on the American people in the name of protecting us from invented evils. The Washington leviathan is the single greatest risk to American global leadership.
Decker: Left-wingers tried to make the 2012 presidential race a referendum on capitalism, particularly in their populist attacks on Mitt Romney’s career at Bain Capital. Even some Republicans jumped in and criticized so-called “vulture capitalism.” What do today’s occupiers not understand about the rightness of the market system and how capital is allocated?
Agostinelli: The attack on “vulture capitalism” is a core propaganda technique of the radical left. Its populist theme preys on the decency, innocence and, in some cases, ignorance of the electorate, who may not be aware of how capitalism works to the benefit of all. The fallacy in the progressive critique is the egalitarian dogma that no one should get more than what liberals deem is a “fair” reward, nor should there be any risk to anyone to fail. These forced attempts at arbitrary “fairness” are unnatural. That’s just not how the real world works. The “creative destruction” of capitalism is a healthy process that helps allocate capital intelligently and improves life for all people. This is achieved by getting rid of dying entities and freeing up money that is being wasted so it can be invested in more promising endeavors that have a chance at creating jobs and contributing to economic growth.
Decker: In a lecture at the U.S. Naval War College, you warned, “China controls hundreds of billions of U.S. dollars, most from buying U.S. debt. U.S. policymakers must be prepared for possible national-security repercussions.” This risk isn’t considered openly in most discussions about our more than $16.2 trillion in debt. Someone holds those bills and eventually they will come due. What are the consequences of being the largest debtor nation in history, and how can we right this ship?
Agostinelli: No nation can sustain these levels of indebtedness and remain powerful. The Chinese people are committed to assuming their natural rank as a world leader both in economic and military terms. The intersection of their nationalist objective with our national interest is obvious. We are increasingly dependent on third-party nations to finance our debt but are reaching the tipping point. Yes, we are interdependent since China wants our markets for its products, and a sudden shift could devalue their existing holdings — but we need the Chinese more than they need us. Should China decide to minimize purchases of our debt, we would be technically insolvent unless we buy it ourselves.
As Beijing’s leverage over our economy strengthens, a natural hesitancy develops to confront their hegemonic military aspirations in the Pacific. In the absence of our own fiscal prudence, there is great pressure in Washington to cut defense spending, which only emboldens the communists in their quest for supremacy. At the end of the day, though, America’s biggest enemy isn’t the Middle Kingdom but our own profligacy. The most important step to defend U.S. national interest is to balance our books.
Our economy has traditionally been able to manage its social programs by keeping federal spending below 20 percent of gross domestic product. We are approaching 25 percent and projecting even higher; economic growth cannot keep pace to pay for this welfare state, which means evermore deficit spending. There is no future if this crisis isn’t wrestled under control through market-based reforms to entitlement programs and total repeal of Obamacare. As President Reagan stated over 50 years ago, “Nationalized medicine is the fastest route to socialism.” By grabbing control over one-sixth of the economy, Mr. Obama was sentencing us to higher taxation and deficit spending. Our enemies couldn’t ask for a greater coup than having America weakened in this way.
While instituting fiscal constraints, we must foster a low-tax environment with less regulation. As economist Arthur Laffer and the policy experience of the Reagan and Bush 43 administrations proved: Lower tax rates lead to economic growth and higher tax revenues.
Decker: During the Iraq war, then-Defense Secretary Donald Rumsfeld took flak for a comment about the fecklessness of “Old Europe,” but it’s true the European Union is on the verge of collapse. Aren’t we in danger of heading in the same direction and becoming finished as an economic and cultural force if we keep making backward fiscal decisions and shunning the country’s founding values?
Agostinelli: Our friend Secretary Rumsfeld was correct then and even more so today. Old Europe has adopted a “Contracte social” welfare state, largely abandoned their Judeo-Christian roots and embraced the false demigods of socialism and illiberal secularism. Combine this dynamic with demographics that are tilting toward an aging and smaller population and you get a civilization that is in a death spiral.
The social disease of political correctness has entered daily life, inverting good to bad and attempting to rewrite proud histories as an imposition of white supremacy for which we all should make contrition. A consequence of this self-loathing is a nearly full abdication of their self-defense. NATO is a shadow of its intended self, and the French and British are sharing one aircraft carrier in a nonsensical joint venture. This retreat ignores the assault of Islamists in every quarter. Utopians placed their hope in continental consolidation, but the European Union is a political contrivance that has merely accelerated all the self-destructive trends, eroded sovereignty and furthered a globalist-socialist ideology espoused by the United Nations. This is the model Barack Obama envisions for America. We must resist.