Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity

Features

• Cover Type: Hard Cover with 336 pages
• Published by: Yale University Press
• Edition: 1st Edition May 22, 2007
• Written in: English
• ISBN 10 Number: 0300109415
• ISBN 13 Number: 978-0300109412
• Book Dimensions: 9.3 x 6.4 x 1.2 inches
• Weighs: 1.2 pounds

Product Review
"In our lifetimes, humans passed a remarkable milestone. Most people now live in a capitalist economy. This is not, however, the end of history. As the authors of this path breaking book show, there are several distinctly different types of capitalism and it takes a mixture of two of these types to get all the economic, social, and political benefits that capitalism affords."-Paul M. Romer, STANCO 25 Professor of Economics in the Graduate School of Business at Stanford University (Paul M. Romer )

"Good Capitalism, terrible Capitalism tells us that capitalism comes in different flavors, and some of those flavors taste very much better than others. One of these forms of capitalism, entrepreneurial capitalism, is a special treat. It leads to growth and prosperity. The other forms are to be avoided; they lead to stagnation. This new view of the wealth of nations offers a guide to economic policy in all countries, from richest to poorest. This is a daring book with big, bold, important ideas."-George Akerlof, University of California, Berkeley, Nobel Laureate in Economics, 2001 (George Akerlof )

Product Description
Imagine this: a mere century ago, the purchasing power of an average American was one-tenth of what it is today. But what will it take to sustain that growth through the next century? And what can be said about economic growth to aspiring nations seeking higher standards of living for their citizens?
In this important book, William J. Baumol, Robert E. Litan, and Carl J. Schramm contend that the answers to these questions lie within capitalist economies, though many observers make the mistake of believing that “capitalism” is of a single kind. Writing in an accessible style, the authors dispel that myth, documenting four different varieties of capitalism, some “Good” and some “Bad” for growth. The authors identify the conditions that characterize Good Capitalism—the right blend of entrepreneurial and established firms, which can vary among countries—as well as the features of terrible Capitalism. They examine how countries catching up to the United States can move faster toward the economic frontier, while laying out the need for the United States itself to stick to and reinforce the recipe for growth that has enabled it to be the leading economic force in the world. This pathbreaking book is a must read for anyone who cares about global growth and how to ensure America’s economic future.

Reader Reviews
The distinguished authors of this slim volume attempt to answer the age-old economic question of why some countries prosper and others stagnate. This question has been explored by others, most recently by David S Landes in The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor and Jared Diamond in Collapse: How Societies Choose to Fail or Succeed. Landes and Diamond sought cultural and geographical explanations for economic growth and prosperity. The current authors are skeptical of those explanations, and look more toward capitalist institutions. They have identified four models of capitalist economy. The first is capitalism guided by the state, otherwise known as mercantilist capitalism. This model has been favored in Asian countries, where the state controls the banks and other financial institutions. The states underwrite low wage export oriented businesses to produce goods primarily for the world market. The problem with this kind of pratice is that governments tend to overinvest in favored industries and underinvest in those needed for their domestic use. States are also notoriously slow in responding to the demands of a changing marketplace. Secondly, there is oligarchic capitalism. This is when a wealthy elite uses the state as its personal fiefdom. This was the case of Russia shortly after the fall of the Soviet Union. However, the oligarchs are now in retreat, Putin is moving the country toward state-guided capitalism. Both of these models can work for a period of time. Russia, which is blessed with large amounts of natural resources, can probably get away with it for a longer period of time. But this is not enough to sustain long-term growth and prosperity. Thirdly, there is big-firm capitalism. This was the model used by Japan and Europe during the postwar era. Big firms can produce solid growth for many years, but as they mature they tend to settle for the status quo, rarely do they produce innovation or breakthrough technologies that foster dynamic growth. Lastly, there is entrpreneurial capitalism, clearly the authors' favorite. William Baumol, the primary author, is arguably the doyen of innovation economists. The great breakthroughs in technology are usually brought to market by individuals or small firms. This type of organization - free of the constraints of big firms - is better at creating new markets and opportunities. Most countries practice a combination of the above models. According to the authors, the US is so successful because it is a blend of big firm and entrepreneurial capitalism, arguably the optimal combinaton. Many countries have entrepreneurs with grandiose ideas, but lack the capital and infrastructure to realize their goals. The entrepreneurial capitalists is the US enjoy the financial, legal, and educational framework that is needed. The authors also point out that the US may be in danger of losing its edge due to increased regulation and risk-aversion. They argue that we must not only keep the right balance of big firms and small firms, but also maintain a conducive regualtory environment to keep the economy prosperous and growing. Although much of this material is not new, the authors' presention of it is very orderly and refreshing.