Beneath all the folderol about job creation and destruction at Bain Capital or President Obama’s alleged war against success and free enterprise, there’s actually a legitimate debate to be had about what kind of capitalism we want in the United States.
It turns out that capitalism, like ice cream, comes in many flavors. These different capitalisms can be combined, in the same way chocolate and coffee produce mocha. There are also all sorts of mix-ins and swirls that add to the variety. And while there is a natural instinct to arrange these different forms of capitalism along a left-right axis, that is hardly the most interesting way to think about them.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
The first kind of modern capitalism was of the robber baron variety. As the name suggests, this was a period when the economy fell increasingly under the control of a handful of clever entrepreneurs and financiers who ruthlessly used their economic power to enhance their political power, and vice versa. It was an era generally characterized by rapid technological progress, big booms and big busts with widening disparities in income and wealth.
Following the Great Depression, robber baron capitalism gave way to a golden era of “corporate” or “managerial” capitalism, during which growth and innovation were driven by large national and international firms run by trained executives. Competition tended to be gentlemanly and the power of big business was held in check by the federal government (big government) and unions (big labor). Business cycles tended to be relatively tame, and the gap between rich and poor shrank as more Americans joined the middle class. It all seemed to work pretty well until government and labor unions began to squeeze the competitive vitality out of the U.S. economy.
Outside the United States, most other countries had long since embraced some form of “state capitalism,” in which government played an even bigger role, not just as regulator but in many instances as owner of major corporations, many of which were government monopolies. State capitalism worked particularly well for countries recovering from the destruction of World War II, or those like Japan and Korea making the transition from developing economies to developed. But by the 1990s, state capitalism had often given way to crony capitalism — and over-regulated labor and product and financial markets became barriers to innovation and productivity growth.
Back in the United States, state capitalism never really caught on, but there were three new models vying to replace the old corporate capitalism.
“Entrepreneurial capitalism” took seed along Boston’s Route 128, in Silicon Valley outside of San Francisco and before long in places like Seattle, Austin, Boulder and North Carolina’s Research Triangle. While drawing its inspiration from tech companies started in garages by young geeks, entrepreneurial capitalism soon become much more than that. In industry after industry — airlines, package delivery, long distance telephones, restaurants, grocery stores, for-profit education, pharmaceuticals — upstart companies used new products and new business models to upend long-established corporate incumbents.