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Wednesday, June 06, 2007

Not all flavors are the same

If you compare collectivist economies or atleast the idea of such to some of the market economies around the world, collectivist approaches don't always look so bad. Fortunately, the authors of Good Capitalism, Bad Capitalism do us all the favor of drawing important distinctions amongst various flavors of capitalism. Some flavors are much tastier than others. This post at Club for Growth blog has links to the book, a WSJ review and some lectures by the authors including one which has a transcript. I'll just swipe the same excerpts from the review.
Their taxonomy goes like this: In state-guided capitalism, the government decides which industries get investment, and it often controls the banks and usually emphasizes exports....They tend to invest too much in the wrong places, stick too long with yesterday's winners and fail to spot tomorrow's.
In oligarchic capitalism, prevalent in parts of Latin America and the Arab Middle East, power and wealth are held by a few, and economies are organized to make them, not the general populace, richer....
Then there's big-firm capitalism, in which big private enterprises dominate...."At its best, [it] generates sufficiently large cash flows to finance...continuing, incremental improvements in products and services," the authors write. "At its worst, big-firm capitalism can be sclerotic, reluctant to innovate, and resistant to change."
Finally, there is entrepreneurial capitalism, in which small and innovative firms are significant. Think the U.S., Ireland, Israel, Taiwan and, increasingly, the United Kingdom. Forming a company is easy, socially useful entrepreneurship is rewarded, institutions provide incentives for innovation and growth -- a catch-all that encompasses everything from openness to trade to sound bankruptcy laws to effective antitrust regulation.
Messrs. Baumol, Litan and Schramm conclude the "best form of capitalism" blends elements of the entrepreneurial and big-firm strains. The former provides the oomph to imagine and invent technologies that propels economies; the latter provides the money and organization to refine and mass-produce them. The secret to prosperity, then, is for other economies to find their own ways to be more like the U.S.
Good stuff.

1 comment:

Bret said...

I'll certainly agree with that. A closely related post that I wrote awhile back talked about push and pull technology. Demand pulls technology. Universities, government labs, and big corporate labs push technology. Entrepreneurs use push technology and complement it with pull technology that they invent.

Unfortunately, blogger seems to have a bug and I can't provide a link to that post at this time.