Published in the Telegraph-Journal 16th March 2012
Anatole Kaletsky is the author of a superb and optimistic new book on the future of capitalism entitled “Capitalism 4.0”. Kaletsky possesses impressive credentials for a work of this magnitude. He is editor-at-large of The Times of London and governing board member of the New York-based Institute for New Economic Theory, a nonprofit created after the 2007-2009 crisis to promote and finance academic research in economics outside the orthodoxy of “efficient” markets.
Kaletsky puts the upheavals of 2007-2009 in historical and ideological perspective and describes the emerging features of the new capitalist model by explaining how it will differ from previous versions and suggests how the rise of Capitalism 4.0 could transform politics, finance, international relations and economic thinking in the coming decades. This transformation is taking place not a moment too soon.
The market supremacy model of capitalism which assumed that there could be no constraints on the growth of the economy has suffered setbacks from which it cannot recover. Its adherents took it that if any physical or environmental limits to growth appeared, the market would in short order send the correct price signals to ensure that these obstacles were automatically avoided. This reassuring belief, predicated on the oversimplified assumption that efficient markets would always discover and transmit long-term social preferences, no longer is credible.
“For the thirty years following the Thatcher-Reagan revolutions, business leaders took it as axiomatic that virtually all regulations and government intervention was damaging to their interests and that companies should devote substantial resources to campaigning for a minimalist state. Ruthless industrial restructuring and the single-minded pursuit of shareholder value were not only presented was inevitable but also seen as desirable and efficient,” Kaletsky says.
The economic concepts of rationality and efficiency have thoroughly been discredited and a profound re-evaluation of the relationships between corporate management, governments and the public has begun. Corporations will have to acknowledge wider definitions of their objectives than maximizing their share price, especially in the short term.
What is at stake in this transformation is the future of the social contract in the West. Pulitzer Prize-winning journalist Thomas Friedman recognizes as much in a recent New York Times column in which he discusses the key to the success of current American capitalism that will enable it to thrive in the 21st century. To Friedman, American capitalism has been for more than one hundred years “a healthy, balanced public-private partnership where government provided the institutions, rules, safety nets, education, research and infrastructure to empower the private sector to innovate, invest and take the risks that promote growth and jobs.” The lesson of history, Friedman adds, is that capitalism thrives best when you have this balance.
This balance – Friedman calls it a bargain, while Kaletsky calls it an equilibrium – is what underpins the social contract. This balance is also what is increasingly unstable in our society today. In Canada and the U.S., constructive thinking about how environmental pressures could provide incentives or motivate innovation to change industrial, financial and social patterns of activity has become more conspicuously absent. Businesses from the Capitalism 3.0 era are fighting ideological battles against the principle of environmental activism while environmentalists increasingly are fighting market fundamentalism. The result is that increasingly the public is mired in arguments such as whether shale gas can meet the litmus tests of public safety while industry has turned to arguments of economic necessity. Those arguments – that society needs the jobs, that government needs the revenue to fund social programs, that oil extraction is a national security issue – serve only to further harden views that corporations are demanding severe sacrifice from the public.
For the social contract to survive, environmentalists and last-generation capitalists need to become connected to the balanced policies that ultimately will drive sustainable increases in living standards and create jobs. We need a more robust version of capitalism to achieve this.