Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity [Hardcover]

William J. Baumol (Author), Prof. Robert E. Litan (Author), Prof. Carl J. Schramm (Author)

Book Description

Publication Date: May 22, 2007 | ISBN-10: 0300109415 | ISBN-13: 978-0300109412 | Edition: 1

In this important book, three prominent economists propose that there are different varieties of capitalism in the world today--some good for economic growth, others decidedly bad. Writing in an accessible style, William J. Baumol, Robert E. Litan, and Carl J. Schramm documentfour different varieties of capitalism and 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 Bad 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.

Editorial Reviews

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, Bad 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 )

"Good Capitalism, Bad Capitalism helpfully moves the debate on from competing national models to the underlying structures that shape the relative effectiveness of different sorts of capitalism."—The Economist

(The Economist 20070707)

About the Author

William J. Baumol is Harold Price Professor of Entrepreneurship and academic director of the Berkley Center for Entrepreneurial Studies in the Stern School of Business, New York University, and senior economist and professor emeritus at Princeton University. Robert E. Litan is vice president for research and policy at the Kauffman Foundation and senior fellow at the Brookings Institution. Carl J. Schramm is president and chief executive officer of the Kauffman Foundation and a Batten Fellow at the Darden School of Business, University of Virginia.

Product Details

• Hardcover: 336 pages
• Publisher: Yale University Press; 1 edition (May 22, 2007)
• Language: English
• ISBN-10: 0300109415
• ISBN-13: 978-0300109412
• Product Dimensions: 6.1 x 1.1 x 9.2 inches
• Shipping Weight: 1.2 pounds
• Average Customer Review: 3.8 out of 5 stars  See all reviews (26 customer reviews)
• Amazon Best Sellers Rank: #729,709 in Books (See Top 100 in Books)

Most Helpful Customer Reviews

69 of 73 people found the following review helpful

4.0 out of 5 stars Four Competing Models of Capitalism August 11, 2007

By Izaak VanGaalen

Format:Hardcover

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.

8 of 8 people found the following review helpful

4.0 out of 5 stars Very interesting book January 19, 2008

By Michael Magoon

Format:Hardcover

I thought that this book was an interesting take on how government policy can promote or hinder economic growth. I like how they combine together developed countries with undeveloped countries (although there is far more focus on the former). Most books on this subject focus exclusively on the one or the other.
Others have summarized the book well, so I will cover only a few points. I like how they show that there is not one type of capitalism, but many. I would have liked it if they broke down the State-Guided Capitalism a bit more. It seems to me to be a little broad a generalization to lump Japan, Denmark, France, Greece and Poland all into the same category.
A little more analysis of the Oligarchic capitalism would also be nice. It is not clear to me what metric was used to show that economic wealth was concentrated in the hands of a few and that government policy is only for their benefit. Some people claim that USA and Japan also have that problem, so how do we differentiate.
And their focus on USA as the form of entrepreneurial capitalism (mixed with big corporation) makes the book a bit lopsided. It is not clear that there are really other nations in that category, so how do you know how much of it is American culture and how much is institutions.
What I like best about this book is how they offer different perscriptions for different countries based on their category. And they also tailor their advise to reform around the margins and to avoid taking on powerful interests with radical reform.
Overall, I would recommend this book.

9 of 11 people found the following review helpful

4.0 out of 5 stars Educational - Should Be Read By All August 25, 2007

By Loyd E. Eskildson HALL OF FAME

Format:Hardcover

Baumol et al are strong defenders of capitalism, crediting it with the growth of average American purchasing power by 10X over the last 100 years, and the only real hope for improvement in the future. "Good Capitalism, Bad Capitalism," however, exposes readers to a closer ad more objective look at capitalism than most had already experienced. There are four versions, per the authors, with some good and some bad.

Another valuable insight is that "innovative" entrepreneurs (producers of a new product or service, or creators of new methods for producing an existing product/service), not "replicative" entrepreneurs are the key to rising standards of living. Most successful economies have a mix of innovative entrepreneurs and larger, more established firms that refine and mass produce the innovators' products.

Four elements contribute to an economic growth machine. 1)A relatively easy means of forming a business; business abandonment is also easy. 2)Society rewards socially useful entrepreneurial activity. 3)Government discourages activity that aims to divide up the economic pie rather than increase its size (eg. criminal behavior; lobbying and frivolous lawsuits to transfer wealth). 4)Government ensures openness to trade, and provides effective anti-trust enforcement.

Several commonly held essentials for economic success are actually myths. For example, the existence of hard-working individuals is not sufficient - Russian and Asian immigrants do much better in the U.S., despite having been frustrated in their native land. Geography is also not the key - look at Singapore, and to a lesser extent, Thailand. (Some contend that tropical climate and diseases precludes economic success.) Finally, education and/or democracy are also not key - the former Eastern European countries disproves the former, and China the latter.

The four different types of capitalism include:

1)A state-guided government tries to guide the market, mostly by supporting particular industries it expects to be winners. Government-provided loans are a common means; tariffs are another. This version is vulnerable when the economy reaches the technological frontier due to its lacking experience in seeing into a totally unknown future. Other problems include a vulnerability to corruption and difficulty in pulling the plug on failed ventures into new industries.

2)Oligarchic - the bulk of economic wealth is held by small groups. Government tries to support them; problems include high corruption and income inequality.

3)Entrepreneurial - a significant role is played by small, innovative firms.

4)Big Firms - limited innovative entrepreneurialism.

Pre-capitalism is another category listed - in this version governments are weak (clans or tribes set the rules for most), and there are limited property rights.

Bottom Line: "Good Capitalism, Bad Capitalism" will broaden the perspectives of most readers.