Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis

Andrew Gamble (Department of Politics and International Sudies,University of Cambridge, Cambridge, UK)

International Journal of Social Economics

ISSN: 0306-8293

Article publication date: 15 March 2011

548

Citation

Gamble, A. (2011), "Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis", International Journal of Social Economics, Vol. 38 No. 4, pp. 407-408. https://doi.org/10.1108/03068291111112077

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited


Amidst the gloom and despondency which has emerged since the global financial crisis of 2007‐2008 and the recession which followed Anatole Kaletsky is a ray of sunshine. He agrees that the crash itself was momentous and should be compared in scale to the Great Depression. He argues that it represents a major watershed in capitalism, but he thinks that the transition to the next stage of prosperity and economic advance (what he calls Capitalism 4.0), can be accomplished relatively painlessly and swiftly, in sharp contrast to the long and troubled transition to the next stage after the Great Depression.

Kaletsky believes the history of world capitalism can be divided into four main stages since the eighteenth century. Capitalism 1 lasted by far the longest, up to the Great Depression in the 1930s. Capitalism 2, the era of Keynesianism followed it until the 1970s when it was succeeded by Capitalism 3, the era of monetarism, which ended with the global financial crisis. Now, Capitalism 4 begins. Each of these periods is subdivided, so there is capitalism 1.0, 1.1. 1.2, and there will be similar subdivisions for Capitalism 4. What distinguishes these different eras of capitalism are doctrines about the right relationship of the state to the market; laissez‐faire capitalism is succeeded by Keynesianism and managed capitalism, then by neo‐liberalism and market fundamentalism. Capitalism 4.0 proposes a new synthesis, which moves beyond the opposition of state and market. The state will be a more active state, but it will shrink in size rather than expand further. It will be a smart state which seeks to manage capitalism, abandoning the policy orthodoxies which were discredited in the 2008 crash, without returning to those of the Keynesian era. Instead of merely stabilising inflation, governments will take positive action to simulate job creation and growth. This is a valuable perspective, although there are other criteria for dividing up the eras of capitalism, for example the hegemonies of the leading capitalist powers, or economic structures, which Kaletsky does not discuss.

In his journalism for the Times, Kaletsky has long been known for his readiness to challenge conventional wisdom. If there is a consensus about something he enjoys asserting the opposite. This is often extremely stimulating and this book does not disappoint in that respect, even if many of his assertions will be disputed. He challenges the idea that debt was much of a problem in either Britain or the USA, he presents figures to show that the US housing bubble was nothing out of the ordinary and easily contained, and he disagrees that the levels of debt create a burden for future generations. In particular, he asserts that 2007‐2008 was not a structural crisis. He argues that it was a cyclical crisis made much worse by some disastrous policy decisions by the US Treasury Secretary, Hank Paulson, in September 2008, starting with his refusal to bail out Lehman's and then compounded by a string of other errors. He calls Paulson the most incompetent Treasury Secretary since Andrew Mellon; both of them shared an unreasoning faith in markets. Kaletsky thinks the policy errors that were made were as serious as major military blunders, yet no one has been held to account, so strong is the belief that what happens in markets is a natural phenomenon, beyond the ability of governments to affect.

Since the early 1990s, according to Kaletsky, the world has been driven by four powerful long‐term trends; the rise of Asia, globalisation, the reintroduction of active demand management (what he calls the Great Moderation), and the revolution in finance. The 2007‐2008 crisis only broke the last of these. The other three are still very much in place, which means there is a very good prospect of these events being only a temporary setback to the great surge of growth and prosperity in the world economy which began in the 1990s. Provided governments draw the right lessons and abandon the doctrines of non‐intervention and market infallibility which caused the crisis, then a set of policies and regulatory instruments can be introduced which will help to restore and sustain growth.

Part of the adjustment that is required is to reduce deficits. Kaletsky argues this is now the smart thing to do, because the overriding goal of policy in Capitalism 4.0 should be to maximise the potential for growth and employment in the economy. The dynamism and the adjustment he expects to happen will come from the private sector, the USA still shows the way here. A market economy can only exist with a competent and active government, but that does not mean a government that is too large or too intrusive. Kaletsky is optimistic about the ability of the USA to reduce its trade deficits, and to continue to outperform China. Across the world, he expects the era of Capitalism 4.0 to be dominated by parties of the Centre Right, because he thinks they will best understand the need to expand and contract the state at the same time.

There is much to enjoy in this book. It is written with verve and is always challenging, although occasionally a little repetitive, no doubt reflecting its origins in newspaper columns. Sometimes its optimism can be questioned because it is often asserted rather than based on hard analysis of the political possibilities. The new model of capitalism will need to be embodied in reformed global financial institutions, but Kaletsky acknowledges that progress towards this is painfully slow. He also accepts the possibility that deficit reduction may go too far in some countries, that there is a serious risk of stagflation, and that solutions to some of the trade and financial imbalances may not be forthcoming. These political obstacles to the emergence of Capitalism 4.0 do loom rather large at present. The sunny uplands of renewed growth are certainly visible, but reaching them may be much bumpier than Kaletsky suggests.

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