Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis
Capitalism 4.: The Birth of a New Economy in the Aftermath of Crisis
In early 2009, several economists, financiers, and media pundits have been confidently predicting the end of the American-led capitalism that has shaped background and economics for the past a hundred years. Yet the U.S. financial model, far from being discredited, could be strengthened by the fiscal crisis.In this provocative book, Anatole Kaletsky re-interprets the monetary crisis as portion of an evolutionary procedure inherent to the nature of democratic capitalism. Capitalism, he argues, is resilient. Its 1st
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Useful, but Overlooks the Dramatic Future Impact of Technology,
Capitalism 4.0 offers a useful analysis as far as it goes, but I think it completely misses the structural changes that are likely to come about as a result of accelerating technology and the dramatic impact those changes will have on the nature of capitalism. Like most of the books that deal with the financial crisis, Capitalism 4.0 has entire sections devoted to the impact of financial innovations, but absolutely nothing about the impact of technical advances in the real economy. For example the words "technology" and "automation" do not appear in the index.
Advancing technology and globalization have resulted in stagnant wages for most people in the U.S. for decades, even as housing, healthcare and education costs have been soaring. To a significant extent, the lack of wage-based income growth was probably an important driver of the housing bubble because buying a home represented the only way for average people to get ahead. Economists, including the author of this book, completely miss that connection between the bubble/financial crisis and real-world technological advance. The reality is that many of the problems being suffered by capitalism are due to a glut of labor brought on by automation technology and globalization. That reduces the bargaining power of all workers and drives down wages and consumer purchasing power.
Prior to the current crisis, average people were able to maintain consumption via credit, but those days are over and we now face a potential crisis of diminished consumer demand that could tip us into a deflationary spriral. It's important to realize that technology is continuing to accelerate. The problems that we see already will only get worse in the future.
For a great overview of this issue--and a focus on the future rather than the past--I'd strongly recommend this book: The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. It shows how advancing technology will very likely lead to structural uemployment and even more extreme concentration of income into the hands of the few. As someone who works in the technology field, I'm convinced that the trends described in this book are already well underway and underlie, at least in part, the current crisis. As "The Lights in the Tunnel" points out, this problem may ultimately be so big that it defies conventional solutions. I highly recommend that anyone concerned about the future of capitalism check out this book and give these issues some serious thought.
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|Unmatched Resilience of Modern Capitalism,
Anatole Kaletsky's key aim is to demonstrate that modern capitalism does not break, but bend in times of "existential" crises (p. 191). Like democracy, modern capitalism has an inherent institutional and political flexibility at its core (pp. 2; 19-20; 35; 311). This evolutionary ecosystem has reinvented and reinvigorated itself through rare crises for the last 250 years (pp. 3; 26; 36-37).
Modern capitalism has more staying power than its critics on both Left and Right usually want to give it for two key reasons:
1. Capitalism has been able to overcome its own contradictions allowing it to undergo radical change (pp. 2; 5; 21; 34-35; 52-53; 82; 157; 201-208; 246; 269-270);
2. Ambition, initiative, individualism, and competitive spirit are embedded in human DNA (pp. 1-2; 20; 22; 25; 41).
Kaletsky reminds his audience that the critical distinction between crises in capitalism and crises of capitalism is often overlooked. Crises in capitalism represent what Joseph Schumpeter called the process of creative destruction through which a group of businesses and industries are reorganized through the regular economic cycles of booms and busts (p. 34). In contrast, crises of capitalism have an impact on the broader capitalist system itself, shake economic assumptions and political beliefs, and cause far-reaching changes both within and between states (pp. 37-38).
The necessary metamorphosis of the capitalist system is at its most difficult when it is close to breakdown. The interest groups that have wealth and power under the threatened existing iteration of modern capitalism defend ruthlessly the status quo under the pretext that any attempt to change their cherished system is doomed to failure (pp. 9; 22-24).
To facilitate the understanding of this extraordinary resilience of modern capitalism, Kaletsky subdivides its history into what he calls the four ages of capitalism. The changing relationship between government and private enterprise has been the clearest feature of capitalism's evolution from one phase to the next (pp. 4; 192). Kaletsky further subdivides the first three ages of capitalism into several sub-periods to capture the key developments that occurred in each of these periods (pp. 43-54). Some historians will argue with Kaletsky's timeline and the way he regroups events to come up with these first three ages. The author notes on this subject: Unlike history, economics relies on simplifications and stylized facts (p. 44).
During Capitalism 1 that lasted from 1776 to the 1920s, economics and politics were to a large extent two distinct realms of human activity and emotion (pp. 3; 43-44). Governments intervened in the economy to collect taxes, mainly to pay for wars, and protect influential political interests without undermining both private property and the profit motive (pp. 4; 44-45). These interventions were expected to disappear over time as a result of a "natural" evolution towards liberalism and free trade. Managing economic activity and employment was excluded from the duties of the state (pp. 45; 159-161).
Capitalism 2 that found its genesis in both the Bolshevik revolution and the Great Depression lasted for about 40 years (pp. 3; 49). Strong belief in benign, omniscient governments and an instinctive distrust of markets, especially financial markets, were the dominant features of this phase of capitalism (pp. 161-168).
Capitalism 3 gestated in the global inflation of the late 1960s and 1970s and was unleashed onto the world under Ronald Reagan and Margaret Thatcher (pp. 3; 51; 53; 76; 80). Capitalism 3 was the antithesis of Capitalism 2, reflecting a firm belief in benign, omniscient markets and an adamant distrust of governments (pp. 3-5; 85-102; 128-155; 168-180; 195). Capitalism 3 got the coup de grace with the bankruptcy of Lehman Brothers in 2008 (pp. 1; 124; 130; 136). Kaletsky notes paradoxically that the wealth created under Capitalism 3 was to a large extent illusory and much smaller than the wealth created by the government-led high-tax capitalism of the 1950s and 1960s (pp. 12-13; 268).
Kaletsky argues that instead of separating government and private enterprise, capitalism 4.0 will bring them in closer relationship (pp. 8; 31; 190-196). Experimentation and pragmatism will color public policy, economics, and business strategy, even it means uncertainty, ambiguity, and inconsistency (pp. 8-9; 26; 30; 40; 200; 258; 279; 306; 318). Kaletsky expects that capitalism 4.0 to exist for 30-40 years before making room for capitalism 5.0 (p. 331).
The main value of Kaletsky's book lies in his framing of the key features of capitalism 4.0 that is emerging around the world in the aftermath of the 2007-2009 crisis (pp. 3, 7):
1. Shrinkage of government size, despite an expansion of government...
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