Capitalism is evolving, but into what?
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.
At a more fundamental level, when production shifted from agriculture to industrial production, the theories of economics changed profoundly, because financial capital gradually overtook land in importance. As information—inherently not a scarce resource—becomes the most productive resource, economics will change again.
We’re convinced therefore that we’re on firm ground with our thesis: capitalism evolves, and even now it is evolving into something new. The question is, Into what?
Say it with philanthropy
- Matthew Bishop and Michael Green are the authors of “Philanthrocapitalism: How the Rich Can Save the World.” They blog regularly at Philanthrocapitalism. Their views are their own. -
Bankers keep telling us how sorry they are for getting the world into the current economic mess, but the public doesn’t seem to want to accept their apology. To show they mean it, the rich need to discover philanthrocapitalism and start to give back to society – for their sakes and ours.
Reckless financiers are public enemy number one and everyone seems to be enjoying the schadenfreude of watching them squirm in front of Congressional and Parliamentary inquisitions. Cathartic as these spectacles may be, it doesn’t seem that the bankers are going to be let off the hook that easily.
Bonuses are already under scrutiny. But more swingeing, and damaging, action is being called for. How long will it be before public bloodlust demands convictions and jail time? Will governments be able to resist draconian regulation of the financial sector that will choke off financial intermediation and risk taking, and thus hobble the economic recovery?
It’s not just the bankers who are in the frame. The financial meltdown is adding fuel to the pre-existing fire of deep resentment of CEOs of big corporations and the rich in general who amassed such a large share of the benefits of the boom time. This is an ugly time to be rich and a perilous period for capitalism as a system.
As our economies worsen, poverty and social unrest will rise. Charities and nonprofits, which will be on the front line in meeting those needs, are being hit by a triple whammy of declining revenue, as private donors cut back their giving, scarcer public funds, and rising demand for their services.
The rich need to move swiftly and decisively to fill the charity funding gap: to show contrition and demonstrate that they are good members of society rather than a bunch of speculators and hucksters. That’s why, at the World Economic Forum in Davos earlier in the year, we called on the CEOs of the Fortune 500 and FTSE 100 companies to give a year’s salary to good causes. Other wealthy individuals should join them.
Mr. Matthew Bishop, isn’t it a condescending view of the world?
Let’s see it this way: what would you think if you got robbed at gun point, shot at, but luckily escape death, then get taken to the hospital and then realize your doctor is the guy that robbed and shot you?
It’s like arms dealers setting up charities for victims of exploding mines.
Like the guy who lays you off to save his hide now serving you a hot steamy bowl at the soup kitchen, out of his kind heart and selflessness – not to mention a duty as a rich man to tend to the needy and the lesser well-off.
Comparatively speaking of course.
Copernicus was standing on shoulders of Aristarchus of Samos, whose seminal on work heliocentrism work he noted. It seems Richard Morley needs a decent education.
Morley to Chris, “In order to see the solar system as it is, Copernicus had to be standing on the sun.”