At the tail-end of the Cold War, as the Berlin Wall fell, as Glasnost gave way to the crumbling of the USSR, Capitalists celebrated.
As the wall fell, as the unhealthy, drably dressed, survivors of the Soviet States emerged, driving clunky Communist-designed vehicles, in their lumpy Communist-designed shoes what could be a better advert for the joys of Capitalism?
Except, people forget. And, as in George Orwell’s cerebral 1984, there are Ministries of Information inventing new versions of Newspeak to obscure meaning and disguise intentions.
“Communism” has been entirely discredited. The word, that is, not the ideology. That has re-emerged. Now it is known as “new economics” or “anti-globalisation” or “people’s economies”.
The prevention of Newspeak
A new book by William J. Baumol, et al, “Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity“, is a healthy attempt to contextualise the different forms of market economics. It extends the theories espoused by Francis Fukuyama in his controversial “The end of history and the last man“.
Capitalism, in many ways, is simply the ecology of markets. We can argue about different types of capitalism, and which is better than others, much as we do with ecologies. It, as with everything, depends on the context. Baumol identifies four types of Capitalism:
1) State-guided – government “guides” the market; so France and Germany with their state “champions”
2) Oligarchic – where the bulk of the power and wealth is held by a small number of individuals and families; Russia
3) Big-firm – most of the economy exists in a few large corporations; South Africa
4) Entrepreneurial – most of the economy is controlled by small firms; er, no-one actually, maybe the UK
Countries have some blend of two. Russian moving from oligarchic to state-led. The US moving from entrepreneurial to big-firm. Oligarchic tends to be the worst performer and possibly the one you do’t like. It really does act to concentrate wealth in the hands of the few. To keep it brief, the best performer is a balanced big-firm entrepreneurial economy. It allows for easy market access for new firms and new ideas, as well as rapidly removing dead-wood large firms cluttering up the place.
The reason the US has done so well and dominates the world economy is because they’re in this category (although, Baumol suggests that they do themselves no favours by moving towards an unbalanced big-firm economy). China is using a mix of State-guided and entrepreneurial and is rapidly catching up.
The language of markets
Language changes and so I present a graphic guide to decide on the type of economy you may be interested in:
Note that the text refers to situations as you head to the extreme of each quadrant. Yes, it is a simplification. Note the relationship, though: a low distribution of power with a wide distribution of wealth does run the risk of fuelling corruption; while a concentration of wealth with a wide distribution of power can lead to simple opinion purchasing. Both reduce the ability of those without to influence those who have.
Clearly a centralisation of both wealth and power (such as a Soviet state) will lead to the least benefit for the majority. But too widely distributed power and wealth can make a state ineffectual.
Clearly it depends on circumstances. China is a state-led economy recovering from years of Communism and dictatorship. As Iraq has proven to any doubters, simply handing responsibility to people unused to it can result in chaos. This is something that gives the Chinese politburo the quivers. They have decided on state-led entrepreneurship. Wealth and power are being decentralised but in tiny parcels. They are sitting in the bottom-left corner and attempting to shepherd their way rightwards but, as they’re discovering, wealth has a habit of allowing the purchase of a small amount of power as well and so they’re being dragged â€“ ever-so-slightly â€“ upwards.
The US has long been in the top-right quadrant. However, protectionist measures, bad policies and tax-breaks to specific industries has resulted in a concentration of wealth and power and the US is shifting towards the left. Note that, as with China, as you hand more wealth to some you also hand them more power.
Something to keep in mind.
Wealth and Power guided by Neutrality
The best system would be mixed. Having a large number of wealthy and powerful entities kept in check by a massive and wide spread of less-wealthy, less-powerful entities all tugging in different directions.
Not present here is also the idea of an impartial system; net neutrality, if you like. The system should not favour incumbents. It must not seek to protect those with wealth and / or power any differently than it should protect those without.
The third axis of the graph (which would make the whole a lot more difficult to represent) is that of the level of systemic neutrality.
A system that favours the elite over the rest is going to endanger the whole.