By Satyajit Das, a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2010, FT-Prentice Hall).
Anatole Kaletsky (2010) Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis; Public Affairs, New York
In their song Lola, Ray Davies and the Kinks sang: “Girls will be boys and boys will be girls/It’s a mixed up muddled up, shook up world/ Except for Lola, L-L-Lola”. A similar cross dressing phase is evident in modern political economy.
While the Chinese have adopted Capitalism Chinese style, the West now flirts with Socialism Western style. Political positions are increasingly fluid, as evident from the fact that many public intellectuals, darling Libertarians and Conservatives, seem enthusiastic about the rise of China and its systems. The flux has been marked by the return of old fashioned political pamphlets, calls to arms for particular ideologies. Most are delivered via Internet blogs, T.V., chat shows, and the occasional tome, the soapbox and Hyde Park’s Speaker’s Corner now being otiose.
In Capitalism 4.0, Anatole Kaletsky, an editor at the Times, former journalist at The Economist, and an economic consultant, argues that the global financial crisis is transforming capitalism. Capitalism 1.0 (the classical era of laissez-faire), Capitalism 2.0 (the Depression and the rise of government intervention) and Capitalism 3.0 (the stagflation of the 1970s and the rise of free-markets) will evolve into Capitalism 4.0. There are a few “X.1” and “X.2” interspersed in between. The new release entails a redefined relationship between markets and governments. Mr. Kaletsky argues, perhaps blandly, that this is due to capitalism’s innate ability to adapt and evolve.
According to the Kaletsky code, Capitalism 4.0 will require competent and active governments to create the framework for a viable market. It will require governments to manage demand and recognise the imperfections and errors of markets. There is a lengthy list of things that will need to be changed at the political and economic levels to bring the new Xanadu into being. The new order will be characterised by “experimentation”, where government intervention increases in some parts of the economy, financial markets, but decreases in others, such as education and health. Mr. Kaletsky preaches that if governments use their tools properly a rapid and robust recovery will occur.
The arguments and proposals are not novel or original. Many are in active discussion, having been put forward earlier by other authors. The most surprising thing about Capitalism 4.0 is the optimism about policy makers having the ability to make decisions that will improve the system. The policy makers are the same ones that the author vivisects as having failed in the lead up to the current crisis.
Capitalism 4.0 is founded on the bedrock of Joseph Schumpeter’s idea of “creative destruction”. It also sounds ominously like the mixed economy nostrums that all political persuasions have embraced with slight and minor variations in the post World War 2 era. Unfortunately, most people like the creative part of Schumpeter’s formulation, rather than the second less joyful part of the aphorism. Everyone also agrees on a mixed economy, provided that in the mix they are left to make money without interference in good times and bailed out in others.
The written form chosen or the size of the work (just over 300 pages) seems insufficient for the breadth of Mr. Kaletsky’s ambitions and unbounded enthusiasms. Capitalism 4.0 lurches uneasily at times from superficiality to excessive detail. The readers will find potions and remedies for everything from correcting deficits, trade imbalances to running the Chinese economy.
The author embraces futurism, unafraid to make predictions where others dare not predict. There are forecasts on currencies (the dollar), finance, energy (oil), healthcare, housing, tax and the environment. There is even career advice – business and financial institutions will stop employing economists, trained in traditional rational and efficient markets.
The potted history is standard. The author’s interpretation of it will undoubtedly have supporters and detractors depending on the political colour of the critic.
The tone lurches from earnest econo-speak to polemic, branching off occasionally into vituperative attack. Mr. Kaletsky believes that the magnitude of the crisis is largely attributable to George Bush’s Treasury Secretary – Henry “Hank’ Paulson. An entire chapter “The Economic Consequences of Mr Paulson” (around 8% of the book) consists of an ad hominem attack of Paulson, in particular his decision to allow Lehman Brothers to file for bankruptcy.
Despite hyperbole, Mr. Kaletsky claims that Paulson came “closer to destroying capitalism than Marx, Lenin, Stalin and Mao Zedong combined”, the chapter does not match Keynes’ 1925 “The Economic Consequences of Mr Churchill”, a critique of Sir Winston’s defence of the gold standard. The chapter is self consciously titled after Keynes’ piece, a note drawing this to reader’s attention.
Mr. Kaletsky sees no inherent contradiction in espousing capitalism’s self renewal process and avoiding periodically violent and destructive failures to impose necessary market discipline. Puzzlingly, he chooses to believe that voters realise that banks are always government supported and will merely now demand that all banks should pay in advance for government insurance.
Crises are generally useful in forcing decisions. Crises can be also extremely useful in creating a market, whether needed or superfluous, for big ideas about resolving the “crisis”, whether real or manufactured. Capitalism 4.0 is one of a glut of these crisis solution works, searching for the next “big idea”, that will make it onto the best seller list even if it doesn’t change the world or make a difference.
The truth of political economy may be simpler. Capitalism simply survives not on its merits but because it avoids the failure of command economies such as Russia, described once as “Upper Volta with rockets and nuclear weapons”. It also plays to the base instincts of the biological drivers of competition between human animals. It might also be as George Soros observed that at a point in cycle “people continue to play the game although they no longer believe in it.”
Politicians are rarely ideological. The process dictates pragmatism and spin in equal measures. The aim is to attain and retain power for as long as possible. In Rome, this meant ensuring the people had food, drink, employment and games. Surprisingly, little has changed in those political dynamics. The chattering classes and commentators may believe that political economy matters. Unfortunately, the only use that politicians have for theory is to either elucidate decisions already made or discredit opponents.
Other than North Korea, no country has adopted a pure form of political economy in recent history and that fact is unlikely to change soon. Keynes wanted economics to become a better respected profession on a par with dentistry. We remain some way short of that objective.
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This is just drivel. (I can’t tell in each case whether the voice is Das himself of whether he’s just relating the book’s “ideas”.)
While the Chinese have adopted Capitalism Chinese style, the West now flirts with Socialism Western style.
Are we brain-dead Republicans here or thinking people? There is nothing remotely “socialist” about ANY of this. A core element of socialism is that the workers at least OWN the means of production. If you don’t have public ownership, you don’t have socialism, by definition. Period.
What we have here is a command economy where private rent extractions are maintained. That’s called neoliberalism, corporatism, and is the economic aspect of fascism.
It has nothing to do with socialism.
In Capitalism 4.0, Anatole Kaletsky, an editor at the Times, former journalist at The Economist, and an economic consultant, argues that the global financial crisis is transforming capitalism. Capitalism 1.0 (the classical era of laissez-faire), Capitalism 2.0 (the Depression and the rise of government intervention) and Capitalism 3.0 (the stagflation of the 1970s and the rise of free-markets) will evolve into Capitalism 4.0. There are a few “X.1″ and “X.2″ interspersed in between.
Stupid made-up buzz words work so well for Tom Friedman, so I guess imitating him is a good bet.
According to the Kaletsky code, Capitalism 4.0 will require competent and active governments to create the framework for a viable market.
Competent, LOL.
It will require governments to manage demand and recognise the imperfections and errors of markets. There is a lengthy list of things that will need to be changed at the political and economic levels to bring the new Xanadu into being. The new order will be characterised by “experimentation”, where government intervention increases in some parts of the economy, financial markets, but decreases in others, such as education and health. Mr. Kaletsky preaches that if governments use their tools properly a rapid and robust recovery will occur.
This is just trying to put new lipstick on the same old neoliberal pig. Kaletsky’s just a criminal trying to help justify this feudal war on the people.
The bit about “rapid and robust recovery” is in totalitarian code. We should read, “rapid and robust consolidation of the complete robbery and enslavement of the people.”
There is even career advice – business and financial institutions will stop employing economists, trained in traditional rational and efficient markets.
But they should and hopefully will employ the ideologues of “Capitalism 4.0”, especially the coiner of that term.
An entire chapter “The Economic Consequences of Mr Paulson” (around 8% of the book) consists of an ad hominem attack of Paulson, in particular his decision to allow Lehman Brothers to file for bankruptcy.
Another jackass who doesn’t understand the concept, “ad hominem.” Um, in this context attacking Paulson for not bailing out Lehman goes to the crux of the matter. The attack may be correct or incorrect, but it’s not an “ad hom fallacy”.
Mr. Kaletsky sees no inherent contradiction in espousing capitalism’s self renewal process and avoiding periodically violent and destructive failures to impose necessary market discipline.
Of course not, because he’s justifying disaster capitalism which intentionally seeks violence and destruction in order to directly profit off it and to use it as the justification for further depredations. The part about “avoiding crisis” is more code for seeking and exploiting it.
And as the work of Paul Baran and Paul Sweezey established, mature capitalism (where profits are supposed to dwindle to the barest vestige) is inherently ever more unstable, as it becomes impossible for the oligopolist to keep looting at the necessary level. He’s forced to act in a destabilizing manner. “Creative destruction” means nothing more than that the criminal must keep creating destruction in order to pry open new oportunities to commit more crimes.
Puzzlingly, he chooses to believe that voters realise that banks are always government supported and will merely now demand that all banks should pay in advance for government insurance.
Unfortunately, the evidence is that there’s no logical limit to what the voters will put up with.
If the people ever do reach a tipping point, it won’t be one which can be logically explained. If the people were rational and logically moral about their freedom and dignity we’d already have had the Revolution.
Crises can be also extremely useful in creating a market, whether needed or superfluous, for big ideas about resolving the “crisis”, whether real or manufactured. Capitalism 4.0 is one of a glut of these crisis solution works, searching for the next “big idea”, that will make it onto the best seller list even if it doesn’t change the world or make a difference.
Ah, that’s more like it. I guess that’s Das expressing skepticism about this book’s intentions.
The truth of political economy may be simpler. Capitalism simply survives not on its merits but because it avoids the failure of command economies such as Russia, described once as “Upper Volta with rockets and nuclear weapons”.
As I said above, Bailout America is a command economy.
The system may be stupid and ad hoc, the commands may often be improvised, but the overall nature of government as an extortionist, bagman, and thug for the corporate oligopolies, gearing all its policies and propaganda exclusively toward that goal, is clear.
attempter: “If the people ever do reach a tipping point, it won’t be one which can be logically explained.” This is most always the case in history; a logical variant on ‘for want of a nail.’ But yes, I agree with you here: in the present American context, the tipping point is likely to be just as you say. America won’t change because we’ve been robbed, lied to, enserfed, led into iniquity, had our social contracts pissed on and sent to the scrapyard for peons to break up, or even been misruled; change will likely come because somebody insults us too openly or reality vomits up through the floorboards of illusion while the band is bloviating ‘Hail to the [Mis]Chief.’
I agree but with a few changes and additions.
The true progression was Capitalism 1.0 (the classical era of laissez-faire), Capitalism 2.0 (the Depression and the rise of government intervention by and for the people) and Capitalism 3.0 (the stagflation of the 1970s and the rise of government intervention by and for the oligarchs).
I find it amazing that both Kaletsky and Das fail to grasp the simple truth that, as you put it, “Bailout America is a command economy.”
There are command economies that are democratic and serve the interests of the people (Capitalism 2.0). And then there are command economies that are not democratic and serve the interests of the oligarchs (Capitalism 1.0 and Capitalism 3.0).
Laissez-faire is, was and always will be a lie. As Reinhold Niebuhr was quick to point out, what laissez-faire is in practice is laissez-faire for the rich and powerful and a boot to the neck for everybody else. It is a command economy, but commanded by and for the oligarchs. For a little review of what laissez-faire really is, I recommend a reading of the chapters entitled “III. The Big Red Scare” and “VII. Coolidge Prosperity” from Frederick Lewis Allen’s book Only Yesterday. It recounts the history of the 1920s, or the era of Capitalism 1.0. What we have is an environment where business and finance operate with impunity, juxtaposed with the concomitant demonization and harsh oppression of labor.
Here’s how Lewis sums up the mood that pervaded the 1920s:
“America,” wrote Katharine Fullerton Gerould in Harper’s Magazine as late as 1922 “is no longer a free country, in the old sense; and liberty is, increasingly, a mere rhetorical figure. . . . No thinking citizen, I venture to say, can express in freedom more than a part of his honest convictions. I do not of course refer to convictions that are frankly criminal. I do mean that everywhere, on every hand, free speech is choked off in one direction or another. The only way in which an American citizen who is really interested in all the social and political problems of his country can preserve any freedom of expression, is to choose the mob that is most sympathetic to him, and abide under the shadow of that mob.”
Sentiments such as these were expressed so frequently and so vehemently in later years that it is astonishing to recall that in 1922 it required some temerity to put them in print. When Mrs. Gerould’s article was published, hundreds of letters poured into the Harper’s office and into her house-letters denouncing her in scurrilous terms as subversive and a Bolshevist, letters rejoicing that at last some one had stood up and told the truth. To such a point had the country been carried by the shoutings of the super-patriots.
To sum up, what really transpired is this:
Capitalism 1.0 → Capitalism 2.0 → Capitalism 1.0
There is no progress here, only atavism.
Will the last atavist please turn on the lights when they leave?
Full marks for the synopsis: Capitalism 1.0 → Capitalism 2.0 → Capitalism 1.0 is the progression.
Nicely done without too many citations, impressive.
Then Capitalism 2.0 – by and for the people – is an aberration, the product of a set of unique historical circumstances.
Say it ain’t so…
Thanks, Attempter. I too was puzzled by the Socialism ‘charge’, tossed out as an immaculate given, like Saddam-al Qaeda, Iraq-911, to be accepted unchallenged and ill-defined. ‘Socialism’ has thus been widely Orwellized with malice and forethought … to obfuscate the current reality of corporate welfare and fascism.
As you write, “There is nothing remotely ‘socialist’ about ANY of this. … If you don’t have public ownership, you don’t have socialism, by definition. Period. What we have here is a command economy where private rent extractions are maintained. That’s called neoliberalism, corporatism, and is the economic aspect of fascism.”
It’s puzzling that Das even bothered to wade through Kaletsky’s apparently vapid and conflicted work. Kaletsky sounds like a tweaker: all we need is someone more expert like himself to twist knobs and pull levers for better results — just an upgrade, a new release, not a new system. He’s like a lot of economists: supposedly expert at counting, polishing, and distributing golden eggs, but utterly clueless about the care and feeding of geese.
And it’s most strange for capitalist apologist to be so furious with Hank for doing one single thing right, ONE—the bankruptcy of Lehman—allowing one theoretical principle of free market capitalism to actually apply in the real rigged-market world. Kaletsky must have been among that tiny group of bondholders who actually got a buzzcut when the market collpased, instead of workers and taxpayers.
Coming from ignorant or lying conservatives and “libertarians” the socialism canard is typical.
But it seems like others (like Das in this case) do it out of some moronic MSM-style quest for false “balance”. “I’m going to suggest capitalism may be going too far? Well, I better also suggest how what’s happening is somehow ‘socialism’. ”
I remember from last year a George Washington post here at NC which he titled something like “Is This Fascism, Corporatism, or Socialism?”, where he proceeded to give a good description of how it’s both of the first two, while he just gratuitously and wrongly slapped the term “socialism” onto the same fascist phenomena, clearly for no reason other than to round out the list of allegations, again MSM style.
When called out in comments for it, he could only backpedal in a lame way and clearly had no rationale for why he did it in the first place.
Socialism has to mean at least public ownership, by definition.
(For example, criticism of the “welfare state”, not that we have much of that either relative to the country’s wealth, is a criticism of liberalism, not socialism. The welfare state is just a state-enforced manifestation of trickle-down, but firmly within the framework of private ownership and rentier elitism.)
Kaletsky has spent his career as an economic journalist on the British side of the pond, and from that geographic location his phasing of ‘capitalism’ may make a cetain amount of sense. His ‘3.0’ includes the Big Bang and the ball-breaking of industrial labor in Britain which assuredly changed the political economy there signally. And in the present economic rupture, Britain’s government seems to have much more forcefully advanced a ‘new rulebook’ for the financial system within its own borders, so a ‘4.0’ phase is at least plausible. From other global perspectives, though, Kaletsky’s phasing looks wan, indistinct, or just not on. The US has done nothing remotely like a 4.0 ‘new rulebook’ change, and it’s not clear that the EU outside of Britain has even settled upon a joint regulatory program, let alone what such a program might look like.
Additionally, not having read Kaletsky’s thesis, I can’t say, either, whether he in any significant way considers the relationship of East Asia in general and China in particular in relation to his proposed phasing structure. The ‘Asian model’ of market capitalism—heavy government intervention behind a nominally market economy with big money and big government symbiotically joined—strikes me as a far more important and significant permutation of ‘capitalism’ than either of Kaletsky’s putative ‘3.0’ and ‘4.0’ phases. It is quite possibly the case that the structure of developed economies in most nations in, say, three generations, will look far more like ‘Asian model’ structures than occidental ‘robber baron model’ or ‘social partnership model’ structures, the two significant alignments in the European-dominated portions of the globe since the inception of bureaurcatically administered nation-states with industrial economic bases of importance; say, since 1800. [I’m not presenting any comprehensive analysis here, just making, y’know, sweeping observations.]
In short, I don’t place much weight in Kaletsky’s phases as outlined in this summary, though perhaps there’s more support in his actual text. If there is even a credible 3.0 in Western capitalism, I can’t think of it; certainly there doesn’t appear anything in view of a change coming out of the present storm and sorrow.
And regarding Schumpeter, all of these neo-liberal, free market apologists love to quote the ‘creative destruction’ without really giving his theoretical oeuvre significant attention—because that ‘creative destruction’ suits their own purposes, not because they use it as Schumpeter did. Those present purposes? Well, sweeping aside labor bargaining or environmental legal hard limits or government long range planning or community involvement or even informed participation; yeah, all _that_ destruction is part of the creation that concentrators of great [personal] wealth are eager to get on with. If your particular modest, prosperous business happens to get lodged slow-footed beneath their chariot wheels, that must prove that you’re not creative enough so the faults on you. Joseph Schumpeter actually had a far reaching thesis of many dimensions on how states of order in industrial capitalism changed. It’s been a couple of decades since I read it in detail, so I don’t want to start spouting, but there are at least two important aspects which all fo thse destructive creators don’t get around to including in their analysis. The reason Schumpeter posited destruction occurred was principally due to the saturation of economic regimes, typically technological regimes. Such regimes reached their optimal utility and penetration in an economy, staled, then declined or were simply overrun by ‘innovations,’ particularly technological innovations. (To my recollection, Schumpeter also considered the possibility that _social_ structural regimes optimized and then were similarly eroded by the new; certainly, Schumpeter’s basic argument could be so extended.) Secondly, as a separate and surely broader analysis of industrial capitalism, Schumpeter argued for profoundly cyclical actions of long duration within its activity. He did not believe, contra Keynes, that government intermention would overcome such cyclical action but argued instead that we should, well, _get on with it_ letting that destruction be brief and the new prosperity be speedy. Or so he had it. But all these present creative destructors, never manage to bring either Schumpeterian cyclicality nor the actual inherent senescene of existing regimes affect their judgments. I’ll bet a dollar to a dime we don’t see much of either of these issues in Kaletsky’s synthesis.
Well, Schumpeter could have been wrong on the last two points but right on some kind of ‘creative destruction’ driven by something else entirely—but what does the idea really mean, then? I don’t think Schumpeter was wrong, however, on any of the three points (not that I agree with many things in his thought, nor necessarily with how exactly he framed these issues, either). So rather than read Kaletsky, I would urge those interested to instead read Schumpeter; he’s worth the time. His 1939 text was, if I recall, _Economic Cycles_, though he summarized much of his though in several later papers into the 1950s if one cares to look. Go to the source, and form your own opinion. Sez I.
I hate dentists, too…..
I never went and now I’ve no teeth. There is this damm business of consequences, peridontal and economic that puzzles me. I’ve managed to cure my peridontal problem but this poltical economy is fraught with so much manure that I wonder if it could ever be profitable to attempt to cure the problem.
Does anyone make Granny’s lye soap? Good for everything in the place, the pots and pans, and for your hands, and for your face. And what of little Herman and brother Thurman, who washed their ears with the lye soap and haven’t heard a thing in years. I sometimes think they are the better for the experience.
Anatole knows where his bread is buttered. By blaming the entire mess on Paulson and Bush by default, he’s guaranteed some good sales.
Here’s a link to a nice essay on corporatism in America that gives a somewhat different point of view than those expressed in the article and comments:
http://www.americanthinker.com/2009/05/corporatism_comes_to_america.html
Ha. The tweaker grandchildren of the well healed are selling Nana’s jewels to support their addictions…say it ain’t so.
Skippy…can’t for the porn stage of subsidy. BTW how does one get a seat on the films ratings board…eh.
I enjoyed Das’s “Traders, Guns & Money”, but his review of the Kaletsky book is distinctly average. That book can be judged, I think in two parts separately. One, as a recent economic history (Capitalism 1.0 to 3.3) and second, as a set of prescriptions about how the future might be like (Capitalism 4+).
First of all, you’re either with him politically or not. I’m not a fan of reviewing a book merely as a vehicle for expressing hostility to the political differences between the author and the reviewer. This website doesn’t sound like it’ll be populated with too many politically like-minded readers as Kaletsky, so there’s probably nothing more to be said on that here.
Kaletsky appears to be a demand management economist. OK, that’s his perspective.
Next, you might think this is Schumpeter-like but remember Schumpeter was talking, in the context of ‘Capitalism’ of how businesses and sectors could be exposed to this force, not capitalism itself.
Rather Kaletsky is offering what is essentially a Hegelian history (the glass half full to El-Erian’s less impressive half empty version) of our politico-economic system. And he does this quite well. I highly regard the Economist house style, so I greatly enjoyed his well reasoned and wonderfully expressed take on the ideas behind the politico-economic system which politicians find themselves fighting over. The public choice criticism of the political system doesn’t invalidate the possibility of a distinct set of political cultures or eras which develop.
His attack on Paulson might be construed as ‘ad hominem’ but it might also be a nice ‘public choice theory’ case study.
In some ways, Kaletsky is weaker on looking forward – on occasion I reckon his reasoning seems to have been along these lines: our politico-economic world just got a lot messier, so our theory of how that all works should get messy too. I see no reason why this ought to be the case.
If you’re going to have a Hegelian perspective, then the real point from a history of ideas perspective is that 4.0 will itself be usurped many times in the future. So I guess this makes his predictions of less importance as his analysis.
Das says “The most surprising thing about Capitalism 4.0 is the optimism about policy makers having the ability to make decisions that will improve the system.” I disagree. The most surprising, and indeed refreshing aspect about the book is its optimism about capitallism itself, and the system of institutions which embodies it. His Micawber principle is worth taking seriously, but it might also be more constrained or limited than he imagines. I’m thinking of Hume’s problem of induction here.
I think his perspective on what economic world view will underpin 4+ capitalism has been unduly influenced by his appreciation of chaos theory and adaptive systems. The key feature of these systems is that the have to be adaptive. He has simply taken this property of a system and made it the essential property of his analysis. This is a groundless move to make. Just because the system you are studying is adaptive doesn’t mean your model of it has to be. In fact, adaptive systems are often modelled quite successfully with mathematical or computational simplicity (ask Mandelbrot of you don’t believe me). The maths doesn’t need to be adaptive. I think he’s made that kind of inappropriate metaphoric leap (akin to Gilbert Ryle’s ‘category mistake’) in coming up with how he thinks 4+ will look.
Nevertheless, his view on recent economic history is beautifully clear and well worth the price of the book. And I share his optimism.