How the U.S. Turned Its Back on Capitalism

Short-term goals at the expense of Long-term success

For much of the last century, the United States stood as a champion for capitalism. Wars were fought, and regimes were toppled, not just for freedom or security, but to spread economic freedom. Capitalism’s promise rested on secure property rights, limited government interference, and independent institutions that allowed entrepreneurs to take risks and innovators to thrive.

These ideas formed the backbone of modern growth theory: institutions and incentives determine prosperity. But today, America is abandoning those very principles and turning its back on the system that built its success.

The Erosion of Property Rights

Modern growth theory suggests that secure property rights are crucial for economic growth. When individuals and firms believe their ideas, assets, and investments are protected from arbitrary interference, they are more likely to innovate. When those protections weaken, innovation slows.

In August, Secretary of Commerce Howard Lutnick sent a letter to Harvard University, demanding that it prove compliance with the Bayh-Dole Act. The letter invoked the act's march-in rights, which allow the federal government to seize control of these patents, even years after a technology has been developed.

Bayh-Dole Act

The Bayh-Dole Act enabled universities, nonprofits, and small businesses to retain ownership of inventions developed with federal funding. The idea was simple: if innovators knew they could hold the patent and reap the rewards, they would be more willing to commercialize research. This system fueled the biotechnology boom, medical innovation, and the rise of entire industries. This was how capitalism intended innovation to occur: by rewarding it through secure property rights.

The Bayh-Dole Act included a clause that allowed the government to retain “march-in rights,” meaning it could seize patents if the invention weren’t made available to the public on “reasonable terms.” For decades, no administration used this power, because doing so would undercut the very property rights that make the system work.

Investment in Research and Innovation

United States dominance in innovation has been attributed to its commitment to funding research and allowing innovators to own their intellectual property. However, with funding cuts introduced and the erosion of property rights, the United States’ position as a leader in innovation is under threat.

In today’s policy environment, the lines are blurring. Governments are not just referees setting the rules of the game; they are increasingly stepping onto the field to decide who wins and who loses. From directing firms into favored industries to exerting political pressure on companies to change their strategies, property rights seem less secure than they once did. When the state has a direct hand in deciding which companies survive, capitalism erodes.

Government Interference in Firms

A striking example of governments picking winners and losers is the government’s direct purchase of Intel. For decades, U.S. leadership in technology was built on competition, not government ownership. However, policymakers are now using industrial policy as a substitute for innovation. While the goal of rebuilding America’s semiconductor capacity might be valid, the method raises questions.

Historically, the approach would be to create a better and more competitive working environment for all chip makers. These policies would enable competition to evolve in the semiconductor market, ultimately improving outcomes for all firms. By focusing on one firm, the U.S. has transferred the private ownership of resources to the government, a clear departure from the rules of capitalism.

Capitalism relies on creative destruction, where outdated firms fail and more efficient ones take their place. When the government becomes a financier and planner, that cycle breaks. Allowing inefficient firms to remain in operation for longer periods hurts the long-term stability of the economy.

The Fight Against an Independent Federal Reserve

Another pillar of modern growth is institutional independence. For central banks, this independence is not a luxury; it’s the cornerstone of stability. Stable prices and predictability are essential for long-term growth. Innovation, investment, and long-term contracts all require predictability. If inflation is high or volatile, firms and households can’t plan. The uncertainty raises the cost of capital, discourages R&D, and diverts resources away from productivity and toward hedging.

The recent attacks on the independence of the Federal Reserve will impact the long-term growth potential of the U.S. economy. Attempts to fire governors or dictate interest-rate policy threaten to undermine an institution designed to operate above partisan pressure. Without a credible, independent central bank, uncertainty increases, long-term planning is hindered, and economic growth suffers.

Openness and Trade: Engines of Growth

Another core principle of modern growth theory is openness to trade and the exchange of ideas. Countries don’t innovate in isolation; they grow through trade and by learning from others. Integration into global markets allows firms to adopt cutting-edge technologies, expand into new industries, and benefit from knowledge created elsewhere.

Trade and migration are powerful channels for spreading knowledge. U.S. firms can adopt new technologies developed in Germany; a skilled engineer from India can create a startup in California; and an American company can find new markets in Asia. This exchange of goods, people, and ideas fuels productivity growth far more than protectionism ever could.

For much of the postwar era, the U.S. championed this openness, constructing trade agreements and international institutions that embedded capitalism on a global scale. But today, it is turning its back on those policies. Tariffs, industrial policy, and skepticism about immigration risk cutting America off from the very flows of ideas and talent that have long powered its growth.

Turning Away from Capitalism

When property rights erode, markets are distorted, trade is stifled, and institutions lose independence, capitalism no longer functions as intended. Instead of unleashing markets, we are increasingly managing them. The result is slower innovation, weaker investment, and declining trust in the economy itself.

Modern growth theory warns us that prosperity is fragile. It depends not just on resources or technology, but on the rules of the game. If we continue to rewrite those rules in ways that undermine competition and independence, we risk turning our back on the very system that built American prosperity.

The U.S. has chosen to prioritize short-term gains over its long-term success and sustainability. The success of these policies, if they do exist, will be short-lived.

Question for you: If capitalism requires secure property rights, independent institutions, and open markets, can we still call the U.S. capitalist today?

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