Capitalism Isn't Broken

Perry Fagan

Harvard Business School

Michael C. Jensen

Social Science Electronic Publishing (SSEP), Inc.; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Wall Street Journal, p. A-10, March 29, 1996

The Third Industrial Revolution that began in 1973 promises increased productivity, large reductions in the world-wide inequality of wealth, and substantial increases in world-wide living standards. The immediate sources of the changes are large increases in capacity and productivity resulting from major political and technological progress.

The political dynamic behind this Third Industrial Revolution is the spread of capitalism in response to the world-wide failure of communism, socialism and other central planning systems. This move to market-oriented, open economic systems is putting 1.2 billion Third World workers into world product and labor markets over the next generation. Over a billion of these workers currently earn less than $3 a day, while the approximately 250 million workers in the U.S. and the European Union currently earn $85 a day.

With relatively modern technology, experience indicates that these Third World workers can produce from 85% to 100% of the output of their Western compatriots. The major shifts in the world product markets brought about by the 90 million workers in Hong Kong, Japan, Korea, Malaysia, Singapore and Taiwan in the past 30 years provide some insight into the even greater changes that are yet to take place in the West.

One can confidently forecast that the transition to open capitalist economies will generate great conflict over international trade as special interests try to insulate themselves from competition. The transition of established industrial economies will require a major redirection of Western labor and capital to activities where it has a comparative advantage.

The upshot of all this for Western workers is that their real wages are likely to continue their sluggish growth and some will fall dramatically over the coming two or three decades, perhaps as much as 50% in some sectors. Wages will, however, reach a trough and recover as the cycle works its way through the system. Remember, these 1.2 billion Third World workers and their families represent huge new markets as well as competitors.

Number of Pages in PDF File: 6

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Date posted: December 16, 2003  

Suggested Citation

Fagan, Perry and Jensen, Michael C., Capitalism Isn't Broken. Wall Street Journal, p. A-10, March 29, 1996. Available at SSRN: http://ssrn.com/abstract=480144 or http://dx.doi.org/10.2139/ssrn.480144

Contact Information

Perry Fagan
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
Michael C. Jensen (Contact Author)
Social Science Electronic Publishing (SSEP), Inc. ( email )
7858 Sanderling Road
Sarasota, FL 34242
United States
617-510-3363 (Phone)
305 675-3166 (Fax)
HOME PAGE: http://ssrn.com/author=9

Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
B-1050 Brussels
Feedback to SSRN

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