I wrote this Chairman's Letter after spending six weeks at our home in the south of France. My wife, Caro, and I have spent part of the past 35 summers living in an international community with neighbors from throughout Europe, including many from France, England and the Netherlands; several from Scandinavia, Italy and Germany; a few from Turkey, Spain and Portugal; and recently two families from Russia. Once, our community had many Americans crossing the Atlantic each summer; now, we are among a small handful who continue to return.
During our stay, Caro and I have often found ourselves immersed in political discussions. This year, the main topic was America's continuing commitment to Ukraine. Our European neighbors are worried that American support for the war is waning and they fear that, in its absence, Vladimir Putin will be emboldened to push farther westward. Ever since we came to France in the late 1980s, we have been questioned — sometimes grilled — about U.S. politics. This year, we were bombarded with questions that evidenced our neighbors' apprehension about Kamala Harris and their aversion to Donald Trump.
There was a new and intriguing line of questioning about America's economic trajectory. One of my neighbors put it this way: “Is America's laissez-faire economy being replaced with European socialism?” Is the United States, Les États-Unis in French, becoming Les EU? He underscored some of the advantages of European democratic socialism, notably its “safety net” for the bulk of its citizens, but also pointed out some of its disadvantages, namely its “economic sclerosis.”
In much of Europe, socialist policies have led to slow growth, anemic job creation and dampened entrepreneurship. Many European countries have implemented confiscatory tax policies, expensive social programs and protectionist trade policies, which have impeded economic growth. In response, some Europeans, including several of my summertime neighbors, have redomiciled to tax havens such as Monaco, Portugal, Gibraltar and Dubai. The latter's 10-year golden visa has attracted businessmen from around the world.
Is America becoming Europe but without “la dolce vita”? In the recent episode 193 of the very popular All-In podcast, the four hosts foresee the United States approaching “a tipping point” where half of Americans are directly employed by government (federal, state and local) or are indirectly supported by government as their primary source of revenue. When over half of the population is employed by government, as evidenced by over half of the nation's GDP being consumed by government, the All-In hosts believe “our free-market economy is finished.” In 2024, government spending is approaching half of the United States's $25 trillion GDP, with the federal budget constituting $7.2 trillion and state and local government budgets at approximately $4 trillion.
Many Americans, particularly the young, are leery of capitalism and enamored with socialism. As Bill Maher points out in his new book, What This Comedian Said Will Shock You, “For millennials, socialism does not conjure up Stalin and Castro … but rather images of naked Danish people on a monthlong paid vacation.” Distrustful of the private sector, younger generations favor the public sector to allocate resources for the common good.
Both political parties are moving away from free-market economics. Both Democrats and Republicans have embraced industrial policy to encourage the development and growth of certain sectors deemed to be important for global competitiveness and national security. For example, both parties have imposed big tariffs on Chinese goods, in particular electric vehicles. Donald Trump wants even greater levies on China and has proposed a 10% across-the-board tariff on imports, which could be highly inflationary. The Democrats have passed legislation, such as the Inflation Reduction Act and the CHIPS and Science Act, which uses subsidies, incentives and investments to pick winners and losers.
Kamala Harris is proposing to boost government support for housing, health care and child-rearing. Today, the top one percent pays 46% of total federal income taxes, but Harris thinks they should pay more. Her economics team is formulating new taxes to pay for these programs, including a tax on unrealized capital gains, which was tried in France, resulting in the wealthy leaving the country. Her plan would supposedly impact “only a few billionaires,” but, over time, taxes initially imposed on a relative few often engulf many more as demonstrated by the original income tax, enacted by the Revenue Act of 1913, which began as a one percent tax impacting only three percent of Americans. Calling her “Comrade Harris,” Trump has derided her “tax-and-spend measures” as evidence of her underlying socialist ideology intended to redistribute the country's wealth.
Neither party has shown much interest in tackling the ballooning $35 trillion federal deficit. Annual interest on the debt now exceeds the annual defense budget! Trump would tap Elon Musk to lead a government efficiency commission to reduce government spending and cut waste, but unless the assignment includes scrutiny of the largest federal programs, namely Social Security and Medicare, the deficits would persist.
Soon after the Democratic National Convention, Harris suggested placing price controls on groceries, rents and medicines. Her suggestion, reminiscent of the wage and price controls instituted by President Richard Nixon in 1971, reminded me that my father, Dr. Milton L. Rock, was recruited by John T. Connor, Nixon's Secretary of Commerce, to serve on the Manpower Commission to evaluate the impact of such controls on the U.S. economy. My father, who had built the Hay Group into a large human resources consultancy, had worked with Connor when he was CEO of Merck. The Commission found that controls were bad policy then … and they would be now as well.
Our nation needs talented and experienced businessmen like John Connor and Milt Rock to help advise the government in a nonpartisan way. As my father wrote in his inaugural Directors & Boards Chairman's Letter in 1979, “directorship is service.” Directors serve on a board to assure good governance, and many today should consider government service whether it be on commissions or boards, or in agencies or official roles. Now, perhaps more than ever, our nation needs the best and the brightest to take on these duties and responsibilities. Directors, particularly retired executives, have the experience, skills and time to provide wise counsel and competent oversight, which could enable our nation to remain the strongest politically, militarily and economically.
America needs better —not more — government. We need policies that encourage economic growth and reward entrepreneurship while offering necessary social welfare and public assistance. Directors can provide the governance that assures we don't relinquish our capitalist free-market principles and tip over to big government socialism. If we don't step up, we run the risk of becoming Les EU.