Refounding Capitalism

Abstract

The lesson drawn from the crash of 1929 was the need for regulatory reform. In the United States, regulations were enacted to reduce the vulnerability of investors, lenders, banks, companies, and workers to unanticipated swings in financial markets. The lesson drawn from the recent spectacle – by some governments at any rate – was the need for intervention of a different sort. Recently envisioned legislation in the U.S. would supplement the capitalist system with new programs for health care, climate control and energy conservation. Yet the recent experience – the "speculative excesses" and the ensuing collapse – reveal a perverse financial sector and a dysfunctional business sector that are not well treated by enlarged regulation or enlarged public expenditure. In the felicitous term of President Sarkozy, the need is to refound capitalist systems in ways that will make them well-functioning again. This need is acute in the United States, where the perversion and deterioration of capitalist mechanisms appear to have left the economy with less dynamism as well as less business activity. It is profound in Europe, where capitalist mechanisms have long been hamstrung by Italian corporatism, French statism, German socialism, Scandinavian welfarism and the rest.

Over the past decade I have maintained that countries would still benefit from the innovative activity of original thinkers, visionary entrepreneurs, canny investors, pioneering managers and devoted employees that – starting in the 19th century and in some countries ending in the 20th – drew an ever widening share of people in an ever-growing number of nations into engaging jobs, exciting explorations and remarkable commercial advances. I will try to explain, leaving for the last section the issues of instability and their resolution.