This year's World Economic Forum in Davos saw intense debate about the future of capitalism. Many participants were asking whether capitalism, with all of its excesses, still has a place in today's world. The media, meanwhile, speculated that if even managers and bankers were raising doubts about the system's future, then perhaps capitalism had already been laid to rest in Davos.
The reports about capitalism's imminent demise may be somewhat exaggerated, as the ideology of a free but socially committed and fairly regulated market economy was never questioned in Davos. However, there was some discussion as to whether capitalism in its present form serves or undermines the free market economy. A clear distinction needs to be made in this regard between the ideology of a social market economy based on individual responsibility on the one hand, and the term capitalism as such on the other. Over the course of the past 200 years a range of different interpretations of capitalism have emerged as a reaction to industrialization. In historical terms, the transition from manual trades to machines required an ever increasing degree of investment, and therefore the provision of capital. In this sense, capitalism is not an ideology as such, but an applied theory of the creation and efficient deployment of capital as a factor of production. In its genuine sense, capitalism is therefore the component of an economic system that relates to the capital market, enshrined in the principles of a free market and guaranteed ownership. However, these principles are part of a more comprehensive ideology.
Unfortunately, in today's parlance this free market ideology has been equated with "capitalism" as a technical component. As a result, it is easy to gain the impression that the free market economic system founded on individual freedom and, at the same time, social responsibility, is to blame for the excesses of a capitalism that has lost its equilibrium. This is clearly incorrect. The subject of intense debate in Davos was not, therefore, the end of capitalism as an ideology, but the issue of how capitalism's technical components -- which have come off the rails -- can be reformed.
One of the criticisms of capitalism centers on the widening gap between winners and losers due to the so-called turbocapitalism that is a result of global competition. In this context, the so-called Nordic model demonstrates that a high degree of labor market flexibility and social welfare systems do not have to be mutually exclusive -- indeed, they can actually be combined to very good effect. This type of economic policy also enables countries to invest in innovation, childcare, education and training. The Scandinavian countries, which underwent a similar banking crisis in the 1990s to that which we are now experiencing in other Western economies, have shown that by reforming regulation and social welfare systems, flexible labor and capital markets really are compatible with social responsibility. So it is no coincidence that these countries are now among the most competitive economies in the world.
Other aspects of the criticism of capitalism that are worthy of serious consideration are excessive bonuses, the burgeoning market in alternative financial instruments and the imbalance that has emerged between finance and the real economy. However, we do see some progress in these areas thanks to mounting pressure from the general public, governments and also the market.
So even though capitalism was not laid to rest in Davos, it is fair to say that capital is losing its status as the most important factor of production in our economic system. As I outlined in my opening address in Davos, capital is being superseded by creativity and the ability to innovate -- and therefore by human talents -- as the most important factors of production. If talent is becoming the decisive competitive factor, we can be confident in stating that capitalism is being replaced by "talentism." Just as capital replaced manual trades during the process of industrialization, capital is now giving way to human talent. I am convinced that this process of transformation will also lead to new approaches within the field of economics. It is indisputable that an ideology founded on personal freedom and social responsibility gives both individuals and the economy the greatest possible scope to develop.
To ensure that this capacity for development is fair, better regulation and safeguards are required -- above all for capital markets -- which also necessitate global coordination. In this sense, capitalism is now called upon to make the necessary adjustments for it to remain a key pillar of our free market economic system, but also for it to adapt to today's circumstances and to be the servant rather than the master of a socially responsible market economy.
Ultimately, it is a question of returning to the stakeholder principle which I developed and presented in a book published in 1971 and which is now undergoing a renaissance under the name of "shared value creation" thanks to Harvard professor Michael Porter. In an age when social networks are enabling greater participation and transparency, companies will only be able to achieve economic success if they can generate long-term benefits not just for their shareholders, but also for the common good.
Dr. Klaus Schwab is the founder and executive chairman of the World Economic Forum.
- Central Banks creating easy cheap credit leading to reckless lending and housing bubbles.
- Fiat currency not backed by gold leading to inflation (the price of an apple stays the same for centuries if your money is back by hold).
- Unpaid for wars and social spending which dictates massive borrowing by governments.
- Not keeping up with manufacturing the stuff the world wants to buy (currently energy products). Anyone that moans about jobs going to China should look at Germany who has a thriving export economy based on large scale high tech precision goods.
There are sure to be other factors, but these are the main ones.
China's Capitalism = "Talentism" Every advance is tested against other talent and only the talented rise to the top. Deng Xiaoping, himself banished three times, came from hard labor to lead a nation out of poverty. That's leadership.
There will still be issues of resources being limited and society will determine those who are most deserving of having access to those resources. Kind of like now. Actually, exactly like now.
The Nordic model is only sustainable as long as the west is successful. European nations are totally interdependent economically. Norway, for instance, survives through energy sales (in the form of petroleum products). That is not a real future. It is not even stable in the short term as there is so much trade with neighboring states.
No one seems to even consider what the future will bring. At a most basic level it means much more competition from both Africa and Asia. Not just for competition for production either. There will be much greater competition for consumption. Demand is already growing. The west is going to become much less important. China already is a larger market. African nations are working on it.
Capitalism works best when economic freedom is prohibited the least. Property right, liberty, and equality under law are required to ensure prosperity, regulations to affect social justice and redistribution only impede prosperity and create the foundations for further market failures.
Kai
-Mark Twain
Hilarious...according to the Lib fantasy, free markets are created by regulation.
That is when there will be massive wars for resources. I don't think socialism in its truest form will come back because we will have lived too long being competitive against our fellow man and probably will continue that trend.
They are the victims of overwhelming greed which does not allow rational thought processes regarding the needs of Humanity as a whole. Their consciousness is unable to fathom sharing.
The the auto makers, oil companies sell a product based on the cost of resource extraction and manufacturing and we happily buy what they sell. The true cost of what they sell would include the damage that burning gas in a car causes to the environment. That cost is shifted to stakeholders who pay the cost when consequences like pollution and climate change exact a toll.
If you look carefully at the most business models this element is present. If you then realize that this responsibility is in the hands of a corporate entity that has the psychological profile of a psychopath, a concern who is by law trying to maximize profit to shareholders, who has no guilt about poisoning and plundering and if when it crosses regulatory frameworks can simply pay a penalty that is often less than the benefit of the criminal activity...you can easily see why we are so screwed. We have let rapacious corporations shift the cost of their plunder to future generations.
Screw you science deniers and right wing simpletons. EVERY ECO SYSTEM AND SPECIES OTHER THAN MAN ON THIS EARTH IS IN DECLINE and this is why.
It has been a long time since it has been done well, particularly in the US. The tax system is structured to flow investment into the wrong areas and overly reward people for non productive stock market manipulation rather than the creation of the jobs and capital outputs the economy requires to meet the needs of the greater community. Pointless complex financial instruments are created to facilitate the manipulation such as, derivatives, CDO's etc which undermine the core market fundamentals. Massive concentration of capital and wealth in the hands of a miniscule minority is occuring and governments do nothing to offset this. Henry Ford understood how capitalism worked. He wanted his employees able to buy his products. He understood the win-win scenario required for capitalism to be successful long term. Unfortunately capitalism is now about the win- lose scenario. Until this changes nothing is going to get better.