http://www.aljazeera.com/indepth/opinion/2011/12/20111259489728506.html
Is modern capitalism sustainable?
Is there a viable option besides capitalism for today's world? Or is it
possible to adjust the system to make it work?
Kenneth Rogoff Last Modified: 06 Dec 2011 09:55
inShare2
Capitalism has produced 'extraordinary levels of inequality', the author
says [GALLO/GETTY]
Cambridge, United Kingdom - 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 that there is a viable replacement
waiting in the wings. The truth of the matter is that, 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 vacation periods, 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
government intervention, is widely touted as the inevitable heir to Western
capitalism, if only because of China's huge size and consistent outsize growth
rate. Yet China's 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 China will
eventually morph into capitalism's new exemplar. In any case, China is still
encumbered by the usual social, economic and financial vulnerabilities of a
rapidly growing lower-income country.
Perhaps the real point is that, 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 ordinary 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 do not complain about 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 - Sweden, for
example - have been able to curtail this vicious circle without causing growth
to collapse.
Problems not insurmountable?
A third problem is the provision and distribution 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: health-care 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.
It is ironic that modern capitalist societies engage in public campaigns to
urge individuals to be more attentive to their health, while fostering an
economic ecosystem that seduces many consumers into an extremely unhealthy
diet. According to the United States Centres for Disease Control, 34 per cent
of those in the US are obese. Clearly, conventionally measured economic growth
- which implies higher consumption - cannot be an end in itself.
Fourth, today's capitalist systems vastly undervalue the welfare of unborn
generations. For most of the era since the Industrial Revolution, this has not
mattered, as the continuing boon of technological advance has trumped
short-sighted policies. By and large, each generation has found itself
significantly better off than the last. But, with the world's population
surging above seven billion, 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, perhaps the one that has
provoked the most soul-searching of late. In the world of finance, continual
technological innovation has not conspicuously reduced risks, and might well
have magnified them.
In principle, none of capitalism's problems are insurmountable, and economists
have offered a variety of market-based solutions. A high global price for
carbon would induce firms and individuals to internalise the cost of their
polluting activities. Tax systems can be designed to provide a greater measure
of redistribution of income without necessarily involving crippling
distortions, by minimising non-transparent tax expenditures and keeping
marginal rates low. Effective pricing of health care, including the pricing of
waiting times, could encourage a better balance between equality and
efficiency. Financial systems could be better regulated, with stricter
attention to excessive accumulations of debt.
Will capitalism be a victim of its own success in producing massive wealth? 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
as it seems now.
Kenneth Rogoff is Professor of Economics and Public Policy at Harvard
University, and was formerly chief economist at the IMF.
The views expressed in this article are the author's own and do not necessarily
reflect Al Jazeera's editorial policy.
A version of this article was first published on Project Syndicate.
[Non-text portions of this message have been removed]
