Capitalism, a Timeless Conqueror

Capitalism, a Timeless Conqueror

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Capitalism 4.0: The Birth of a New Economy
Anatole Kaletsky
Bloomsbury 2010
£ 20.00

The best thing about journalist Anatole Kaletsky’s book Capitalism 4.0, is that he makes reading economics palatable and leaves out the complex discussions on derivatives and credit default swaps.  Kaletsky instead goes to great lengths to provide a thorough historical briefing on capitalism’s previous three stages, broadly: 1) the laissez faire beginnings of capitalism under founding father Adam Smith, 2) the social democratic government interventionist policies touted by economist John Keynes and US President FD Roosevelt, and 3) the most recent phase, a free market fundamentalism led by Thatcher and Reagan, which prepared the grounds for crisis. His ponderings on the upcoming fourth stage of capitalism provide the title for his book, as well as the bulk of its content.

Yet anyone who has experienced the depressing consequences of the recession first-hand would likely balk at the book’s introductory statement that the “riots, soup kitchens and bankruptcies predicted…did not materialize.” Did Kaletsky sleep through the January 2009 riots in Latvia?  Or maybe he forgot about Iceland’s prime minster resigning amidst political unrest? Need Greece even be mentioned? As editor-at-large for The Times, there is every confidence Kaletsky was well aware of such events. In his book, he is likely referring to the West’s relative stability during the crisis, as he argues this global recession is yet another bobble in the continuing boom-bust cycle of capitalism. These rationalizations exemplify an overarching pro-US, pro-West sentiment laced throughout the book.

Kaletsky tackles in great depth why China’s authoritarian-led economic model will not prevail in the future.  He walks the reader through different potential scenarios, pitting China against the US like two boxers in a ring. But it’s clear which side Kaletsky is on as he argues that China’s system is inherently backward, and its success relies heavily on its homogenous culture—a structural component that cannot be replicated elsewhere.  He does, however, predict big changes in the Chinese system because the population’s expected increase in living standards will undoubtedly yield a public more desiring of democratic freedoms.

Like a true historian, Kaletsky looks at the bigger picture, identifying trends in the ability of capitalism to regenerate with each crisis over the centuries, maintaining its hegemony as the leading global economic model. He also sheds new light on the recent financial crisis, displaying statistics and graphs that indicate the recession was not nearly so bad as the media portrayed.

In the rest of the book Kaletsky focuses on discussing the upcoming model—still capitalism and still led by a democratic US, but without the diehard market orthodoxy. To support this, he tactfully argues that textbook economic theories are not always applicable in real life.  This is especially true in regards to the international trade theory of comparative advantage.  If the recession taught us anything, according to Kaletsky, it is that over-specialization can cripple a nation’s economy when profit bubbles burst.  He calls on nations to restructure their sectors to achieve balance and diversification, which will produce more jobs, encourage investment and create a stronger, more viable economy. It’s difficult to disagree with these points.

The finest of Kaletsky’s perspectives, however, is his fearless critique on the inability of the free market to account for externalities like geopolitical instability, and pollution. Energy and power, he argues, are the market engines of the future, but there is much work to be done to foster a system that is environmentally safe and sustainable. It is up to public policy experts to design a way to decrease demand for oil faster than the supply runs out, without causing too much harm to oil dependent countries (in other words, the West). Kaletsky gives some policy suggestions for the US, such as applying European-style taxing on oil to create a socially beneficial incentive structure.  When governments banned asbestos, he argues, the effected commercial industries were resilient; the oil industry will do the same.

Kaletsky also pens an entire section devoted to criticizing Henry Paulson, former CEO of Goldman Sachs and erstwhile US treasury secretary, the man who Time labeled the face of the financial crisis in 2008.  This section is the most laborious read of the entire book, but it also helps Kaletsky vividly describe the impact of public opinion. In the current recovery period, people have become more in favor of regulation, anti big-government spending and debts, and wary of financial leaders and politicians.

Because of this public disillusionment, coordinated macro-economic planning will “become irresistible” Kaletsky writes—especially in light of the ineffective pricing mechanism the free market produced in the financial sector in 2008.  Therefore, Kaletsky’s predictions about the future suggest the world will see a very flexible style of government planning, mixed with a healthy—not heavy—dose of free market principles and ideas. Instead of a free market guided by Adam Smith’s invisible hand, “capitalism 4.0” will be a relatively free system, guided by the leaders of freedom-promoting governments.

While Kaletsky argues that capitalism is a timeless conqueror, his book may not be as enduring.  Any significant changes on the international political or economic horizon could render his futuristic ideas about capitalism 4.0 obsolete. And the book, in contrast to its upbeat innovative tone throughout, ends on a surprisingly dreary note. “Nothing about this new version of the capitalist system will be rational or perfectly efficient or eternally balanced.” But this harsh reality is likely one that policy makers, business people and consumers alike must accept, to secure a more economically viable future.

Although Kaletsky sometimes overuses rhetorical questions, glosses over a few important points and espouses an obviously Western-centric view, his effortless writing on intricate theories, ideas and policies demonstrates that when it comes to economics, Kaletsky clearly “gets it.” And his clarity leaves you—the reader—thinking that you might just “get it” too.

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