This is an excerpt from Standing on the Sun: How the Explosion of Capitalism Abroad Will Change Business Everywhere, published this month by Harvard Business Review Press.
Like any “ism,” capitalism is a social construct; capitalism is only a term for what capitalists tend to believe and do. Beyond a few fundamentals—that it puts faith in markets as the best way to allocate resources, that it depends on private ownership of property, that it features mechanisms for accumulating capital to fund endeavors larger than individuals can undertake alone—very little about it is set in stone. This is why we often hear phrases suggesting different styles of capitalism: “capitalism with Chinese characteristics,” for example, or “Northern European social capitalism.” No surprise, then, that capitalism is subject to change.
And what’s behind that change? Again, at the theoretical level, it’s easy to surmise. Like any adaptive system, capitalism is nested in an environment, so any substantial change in that environment alters what it takes to thrive. It’s the same basic phenomenon as in nature: when the insect population of the Galapagos moves on to new flowers with a different shape, the beaks of the finches evolve in turn.
That the environment of global commerce is undergoing major change is no secret. Advancing technology, for one thing, constantly reinvents the context in which commerce operates. Demographics, too, have an effect, as the generations raised with new technological capabilities begin to fill positions of power. Most strikingly, the very geography of capitalism is shifting. With each passing year, emerging economies account for a larger proportion of global GDP; from 2004 to 2009, they accounted for almost all of the world’s GDP growth. Patterns of consumption are being upended as global standards of living rise; India’s middle class is now bigger than the entire U.S. population. Americans and others in the developed world have long fretted about job losses and other social implications of this huge and ongoing shift. But the impact of emerging economies will go beyond what anyone is talking about. It isn’t simply that capitalism will increasingly happen elsewhere. It’s that, taking root in different soil, capitalism itself will grow into something new.
Capitalism doesn’t evolve only in theory. The most cursory review of economic history shows how much it has changed in practice. The rules shift constantly. For example, when Great Britain was the epicenter of industrial capitalism, it was understood that a business founder who borrowed capital and then went belly-up should be shipped off to debtor’s prison—or worse, Texas (before air-conditioning). But U.S. capitalists more disposed to second chances later rewrote those rules, creating bankruptcy laws that encouraged entrepreneurial risk taking. The system morphed again with the introduction of limited liability, which allowed firms to shoulder the risk of large-scale manufacturing and, in doing so, gave rise to monopolies (an eventuality no one had worried about before). Even rock-solid assumptions—such as the assumption that currencies must be backed by precious metals—have been tossed aside as trade marches on. These are only a few, top-of-mind examples of ideas that cropped up locally, took hold, and changed capitalism globally.