|07-14-2007, 02:03 AM||#1|
Ring of Famer
Join Date: Jan 2004
"Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity"
Book review: "Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity"
America still wears the crown
Jul 5th 2007
From The Economist print edition
Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity
By William J. Baumol, Robert E. Litan and Carl J. Schramm
Yale University Press; 336 pages; $30 and £18.99
The fall of the Berlin Wall in 1989 may have proved once and for all that capitalism is better than communism, but it did nothing to settle the debate about which model of capitalism is the best. Or, to be precise, the debate about whether the American model will continue to outdo all comers, or instead be replaced at the top of the economic heap by a rival.
In the late 1970s the threat was from the East, as described by Ezra Vogel, a Harvard professor, in his doom-mongering book, “Japan as Number One”. By the early 1990s, the continental European model seemed to be nipping at America's heels, at least according to “Head to Head” by Lester Thurow, a professor at MIT.
Now the perceived threat is again rising in the East, judging by the harrumphing in Congress and a crop of books in the past couple of years, such as Steve Hamm's “Bangalore Tiger: How Indian Tech Upstart WIPRO is Rewriting the Rules of Global Competition” and Ted Fishman's “China Inc: How the Rise of the Next Superpower Challenges America and the World”.
“Good Capitalism, Bad Capitalism” helpfully moves the debate on from competing national models to the underlying structures that shape the relative effectiveness of different sorts of capitalism. Written by three economists, including 85-year-old William Baumol, arguably the leading thinker about the economics of innovation since Joseph Schumpeter, it identifies four main varieties of capitalism.
First, state-guided capitalism, in which government tries to guide the market, typically by supporting certain industries that it expects to become “winners”. Second, oligarchic capitalism, in which the bulk of the power and wealth is held by a small group of individuals and families. Third, big-firm capitalism, in which the main economic activities are carried out by established giant enterprises. Fourth, entrepreneurial capitalism, in which a major role is played by small, innovative firms.
The only thing that all four of these models of capitalism have in common is that they recognise the right of private property ownership. Nor is there any single country that has exactly any one of the models described; in most national economies there is some blend of at least two. Moreover, the blend changes over time, and with it, the performance of the economy. Less than two decades after the fall of communism, Russia is already moving rapidly from oligarchic capitalism to an authoritarian state-guided capitalism.
Neither of those two Russian models are the best producers of economic growth, at least in the long run. Oligarchic capitalism is the worst performer; state-guided capitalism can work well for a while, especially when an economy is in catch-up mode, as Japan once was. What works best, argue the authors, is a mix of big-firm capitalism and entrepreneurial capitalism. And this happens to describe America's economy during the past 20 years, during which time it has reversed its seemingly inevitable long-term decline and delivered a “productivity miracle”.
The possibility of change is at the heart of “Good Capitalism, Bad Capitalism”. The authors are sceptical—for the most part, plausibly—of claims that the growth rates of economies are largely predestined by culture or geography, as books such as “The Wealth and Poverty of Nations” by David Landes or Jared Diamond's “Guns, Germs and Steel” suggest. There are no quick fixes, but over time the right policies can make a big difference, as can the wrong policies.
The authors argue that continental Europe and Japan, currently dominated by big-firm capitalism, can increase the role of entrepreneurial capitalism—perhaps, ironically, by learning from the incremental approach to reform of the Chinese government. And America, they say, is in danger of stifling its own entrepreneurial capitalism through the same increased regulation and risk-aversion that led to the dominance of big-firm capitalism in America in the 1960s and 1970s. If so, it risks losing its capitalistic crown, not as a result of any external threat, but through its own fault.
Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved.
|07-15-2007, 06:17 PM||#2|
Angling in the Deep
Join Date: Oct 2003
Location: Texas Riviera, Southern Mountains
We're actually moving the other direction.