Text size:

  • Small
  • Normal
  • Large
China's Darwinian capitalism is touted as the inevitable heir to western capitalism, if only because of China's huge size and large growth rate. Yet its economic system is continually evolvingy. Reuters
China's Darwinian capitalism is touted as the inevitable heir to western capitalism, if only because of China's huge size and large growth rate. Yet its economic system is continually evolvingy. Reuters

Modern capitalism far from doomed yet winds of change are blowing

Does the recent global financial crisis marks the beginning of the end of modern capitalism?

I am often asked if the recent global financial crisis marks the beginning of the end of modern capitalism.

It is a curious question, because it seems to presume there is a viable replacement waiting in the wings.

The truth of the matter is, for now at least, the only serious alternatives to today's dominant Anglo-American paradigm are other forms of capitalism.

Continental European capitalism, which combines generous health and social benefits with reasonable working hours, long holidays, early retirement, and relatively equal income distributions, would seem to have everything to recommend it - except sustainability.

China's Darwinian capitalism, with its fierce competition among export firms, a weak social-safety net, and widespread state intervention, is touted as the inevitable heir to western capitalism, if only because of China's huge size and large growth rate. Yet its economic system is continually evolving.

Indeed, it is far from clear how far China's political, economic, and financial structures will continue to transform themselves, and whether the country will eventually morph into capitalism's new exemplar.

Perhaps the real point is, in the broad sweep of history, all current forms of capitalism are ultimately transitional. Modern-day capitalism has had an extraordinary run since the start of the Industrial Revolution two centuries ago, lifting billions of people out of abject poverty. Marxism and heavy-handed socialism have disastrous records by comparison.

But, as industrialisation and technological progress spread to Asia (and now to Africa), someday the struggle for subsistence will no longer be a primary imperative, and contemporary capitalism's numerous flaws may loom larger.

First, even the leading capitalist economies have failed to price public goods such as clean air and water effectively. The failure of efforts to conclude a new global climate-change agreement is symptomatic of the paralysis.

Second, along with great wealth, capitalism has produced extraordinary levels of inequality. The growing gap is partly a simple byproduct of innovation and entrepreneurship. People did not complain about Apple's late leader Steve Jobs' success; his contributions are obvious. But this is not always the case: great wealth enables groups and individuals to buy political power and influence, which in turn helps to generate even more wealth. Only a few countries - such as Sweden - have been able to curtail this vicious cycle.

A third problem is the provision of medical care, a market that fails to satisfy several of the basic requirements necessary for the price mechanism to produce economic efficiency, beginning with the difficulty that consumers have in assessing the quality of their treatment.

The problem will only get worse: healthcare costs as a proportion of income are sure to rise as societies get richer and older, possibly exceeding 30 per cent of GDP within a few decades. In health care, perhaps more than in any other market, many countries are struggling with the moral dilemma of how to maintain incentives to produce and consume efficiently without producing unacceptably large disparities in access to care.

Fourth, today's capitalist systems vastly undervalue the welfare of unborn generations. By and large, each generation has found itself significantly better off than the last. But with the world's population surging and harbingers of resource constraints becoming ever more apparent, there is no guarantee that this trajectory can be maintained.

Financial crises are, of course, a fifth problem. In the world of finance, technological innovation has not conspicuously reduced risks, and might have magnified them.

In principle, none of capitalism's problems is insurmountable, and economists have offered a variety of market-based solutions. For now, as fashionable as the topic of capitalism's demise might be, the possibility seems remote.

Nevertheless, as pollution, financial instability, health problems, and inequality continue to grow, and as political systems remain paralysed, capitalism's future might not seem so secure in a few decades.

Kenneth Rogoff is professor of economics and public policy at Harvard University, and was formerly chief economist at the IMF

* Project Syndicate

twitter: Follow and share our breaking business news. Follow us

Back to the top

More articles

Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 Three generations of the Hakimi family tend to their stall Crawford Market in Mumbai. Subhash Sharma for The National

In pictures: Shopper’s delight at Crawford Market in Mumbai

Crawford Market is an old British-style covered market dealing in just about every kind of fresh food and domestic animal imaginable. Later on renamed Mahatma Jotirao Phule, the market remains popular among locals and visitors by its old name, taken from Arthur Crawford who was the first municipal commissioner of the city.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.


To add your event to The National listings, click here

Get the most from The National