¡Descarga Understanding Different Types of Capitalism and Their Impact on Economic Growth - Prof. Cu y más Apuntes en PDF de Administración de Empresas solo en Docsity! ECONOMICREFORM Feature Service Center for International Private Enterprise Good Capitalism, Bad Capitalism: What Is a Market Economy and How Can It Deliver? Article at a glance The traditional approach to studying economic growth • overlooks the importance of individuals and individual firms. Market economies are not monolithic – there are four • different types of capitalism (oligarchic, state-guided, big-firm, and entrepreneurial), each with different features and implications for growth. Entrepreneurial capitalism is the most effective driver of • economic growth because it provides opportunities for new firms to innovate and create new markets. January 30, 2010 Robert E. Litan, Ph.D. The Kauffman Foundation ® This article is based on the remarks delivered by Robert Litan at “Democracy that Delivers: An International Conference on Improving the Quality of Democratic Governance and Economic Growth,” held in Washington, DC on October 27, 2009. The remarks were inspired by Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity by William J. Baumol, Robert E. Litan, and Carl J. Schramm, available from Yale University Press. Center for International Private Enterprise 1155 15th Street, NW | Suite 700 | Washington, DC 20005 ph: (202) 721-9200 | fax: (202) 721-9250 | www.cipe.org | cipe@cipe.org Center for International Private Enterprise Good Capitalism, Bad Capitalism – 2 – The Story of Economic Growth What is a market economy and how does it maximize growth? Nobel Laureate Robert Lucas said that once someone begins to focus on growth, it is hard to think about anything else. Economic growth is the engine that drives improvements in standards of living for people around the world. The purpose of any economic system should be promoting economic growth and thus advancing those standards of living. Economic history shows that there was a long hiatus after the early economists Adam Smith and David Ricardo when there were almost no economists focusing on economic growth over the long-run. True, macro-economic stabilization came to the fore during the Great Depression and of course, John Maynard Keynes wrote about how to stimulate aggregate demand. But the focus of Keynes’ work was not on the long-term growth of the economy. There was no resurgence of that interest until Robert Solow’s work in the 1950s, which eventually led to a Nobel Prize. Still, Solow’s work did not vault economic growth into the pantheon of the most important subjects that economists study. The subject remained a minor concern until the famous Summers-Heston Penn World Table databases were made available and economists were able to do the thing that they love to do most, which is to use a set of economic data to explain trends and outcomes – in other words, run regressions. They were able to use income data, appropriately adjusted for differences in purchasing parity, and compare it to every kind of socio-economic variable one could want. Economists since have made an industry out of running such cross-country regressions to try to figure out the magic recipe for growth. These recipes have encouraged the so-called ‘bake the cake’ approach to economic growth, which is the notion of taking some ingredients – such as capital, labor, knowledge, innovation, or institutions – putting them all in a bowl, and mixing up growth. Using different coefficients or combinations of ingredients, depending on the time period and on how many other ingredients are in the mixing bowl, economists came up with many different formulas. That is basically the way economists thought for a long time about economic growth. It is not, however, the only way to think about growth. After all, economies consist of individual people and individual firms. If there is one thing to learn from economic history, it is that aggregate growth arises from the growth of firms; economies are nothing more than the aggregation of the firms within them. Thus, the really interesting story in economics is what accounts for the formation and the growth of individual firms. There were seeds of interest in this notion of growth among economists as long as 30 years ago. Examples include Richard Nelson, who now teaches at Columbia University, but who was also a professor at Yale University and Sidney Winter, who wrote a pioneering book 30 years ago on the evolutionary approach to firm formation and growth as a basis for understanding economy-wide growth. More recently, William Baumol and Nobel Prize-winning economist Edmund Phelps have focused on the formation and growth of firms as the engine for economic advancement. The Kauffman Foundation has been one of the leading funders of this kind of growth-related research in the world, and much of its tradition of in-depth and critical analysis is now embodied in the book Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity, which I had the good fortune to co-author with William Baumol and Kauffman’s President Carl Schramm. Good Capitalism, Bad Capitalism The premise of the book is that market economies or capitalism are not monolithic – although there has been a tendency to think so after the Berlin Wall fell. The perception was, at least in the United States, that capitalism had won and communism had lost and that was the end of the story. There was little discussion about the various forms that capitalism took. Out of the world’s
