Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity (Hardcover)

by William J. Baumol (Author), Professor Robert E. Litan (Author), Carl J. Schramm (Author)
Key Phrases: unproductive entrepreneurship, oligarchic capitalism, wealthy economies, United States, World War, World Bank (more...)

Editorial Reviews

Review
"'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" --This text refers to the Paperback edition.

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 )

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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: 9.3 x 6.4 x 1.2 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 3.7 out of 5 stars See all reviews (21 customer reviews)
• Amazon.com Sales Rank: #231,558 in Books (See Bestsellers in Books)

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Most Helpful Customer Reviews

52 of 54 people found the following review helpful:

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

By	Izaak VanGaalen (San Francisco, CA USA) - See all my reviews (TOP 500 REVIEWER)    (REAL NAME)

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.

5 of 5 people found the following review helpful:

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

By	Michael Magoon "HistoryBuff" (Seattle) - See all my reviews (REAL NAME)

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.

23 of 32 people found the following review helpful:

5.0 out of 5 stars Should be required reading for third world policy makers., June 14, 2007

By	Sivakumar Nadarajah "Author of America Misund... - See all my reviews (REAL NAME)

Coming from a third world country( Sri Lanka, if you are interested in knowing) where capitalistic economic polices meant more money and import/export privileges to the ruling party and "king makers", I strongly think "Good Capitalism, Bad Capitalism" should be made required reading before any loans were granted to poor nations by either G-8 or World Bank .

I was absolutely fascinated by the explanation the authors have given for the theory of "entrepreneurial capitalism". It's definitely the best explanation I've ever found and it clearly tells us that entrepreneurial capitalism is the smartest way to introduce fiscal policy changes in nations that are reluctant to embrace new models.

Take Singapore, Hong Kong, China and India for example. The reason those countries are developing is not because of "traditional" capitalism, but because they made the political environment suitable for "entrepreneurial capitalism".

India would have been a disaster if they had embraced the "bad" capitalistic model, given the political corruption that existed in the system. Entrepreneurial Capitalism resolved and took care of many social problems that traditionally came with the "bad capitalism" in those countries.

Sri Lanka is a classical example where "bad" capitalism couldn't do much due to the lack of importance and "safety" that was given to true entrepreneurs. To be a successful entrepreneur in Sri Lanka , you needed political alliance. Otherwise you would be abducted. I guess the same applies to Russia, too.

All in all, "Good Capitalism and Bad Capitalism" is a book that may very well change the capitalistic landscape and will sure help future economic decision makers.

N.Sivakumar
Author of:
America Misunderstood: What a Second Bush Victory Meant to the Rest of the World