aligica & tarko - possible futures of capitalism
DESCRIPTION
based on Paul Dragos Aligica & Vlad Tarko papers on Regulatory capitalism and State capitalismTRANSCRIPT
Possible Futures of Capitalism
Paul Dragos ALIGICAVlad TARKO
George Mason University, Mercatus Center
Center for Institutional Analysis and Development (CADI) workshop 2012
Outline
• A puzzle: regulatory capitalism VS. deregulation• Taxonomy of capitalist systems• Illustrations of recent historical developments
(past 2 decades)• Non-deterministic long-term history (past 3
centuries)• What determines the direction in which
capitalism changes at the level of individual countries?
• Globalization and the interaction between state capitalism and market-capitalism
CHANGES IN THE REGULATORY ENVIRONMENT
The regulatory capitalism puzzle: “more rules, freer markets”
The “Regulatory Capitalism” Thesis
• “…the neoliberal policy package of smaller government, privatization and deregulation was never an accurate way of describing what was happening in the US or UK” (Braithwaite, 2005)
• We are in fact entering an era of “regulatory capitalism”, “regulatory state” or a regulation-centered political economy.
Number of regulatory agencies (RA) (left) and the increase in the proportion of
regulatory agency niches filled (right) for 16 sectors across 49 nations, 1960–2002
(source: Levi-Faur in Braithwaite 2008)
Staffing of Federal Regulatory Agencies
(source: de Rugy & Warren 2009)
Budgetary Costs of Federal Regulation, Adjusted for Inflation
(source: de Rugy & Warren 2009)
Number of pages published annually by the Federal Register per million people
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
0
50
100
150
200
250
300
350
400
450
(source of data: Office of the Federal Register)
Percentage of occupations requiring licensing
1950s 1970s 1990s 2000s0
5
10
15
20
25
30
35
Perc
en
t
(source of data: Krueger & Kleiner 2010)
Number of US states licensing occupation, 1890 and 1950
AccountantsArchitectsAttorneys
DentistsEmbalmers
Professional engineersPhysicians
TeachersVeterinarians
BarbersFuneral directors
Real estate brokersSurveyors
Dental hygienistsInsurance brokers
ContractorsPlumbersMidwives
MinersLibrarians
4
4
4
4
4
4
4
4
4
6
12
12
19
23
26
33
35
38
39
43
48
48
48
48
48
48
48
48
48
46
40
40
33
29
26
19
17
14
13
9
in 1950 in 1890
(source of data: Zhou, 1993)
Regulation of credit, labor and business, United States
1970
1975
1980
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
5
5.5
6
6.5
7
7.5
8
8.5
9
10 is maximum economic freedom, 1 minimum (source of data: Frazer Institute 2011)
Time required to start a business (days)
2003 2004 2005 2006 2007 2008 2009 2010 20110
10
20
30
40
50
60
51.1
41.6
29.125.0
21.1
15.8 14.8 14.1 12.3
6 6 6 6 6 6 6 6 6
Euro area United States
(source of data: World Bank)
Cost of business start-up procedures (% of GNI per capita)
2003 2004 2005 2006 2007 2008 2009 2010 20110
2
4
6
8
10
12
14
11.8 11.4
9.9
8.27.5
7.06.2 6.4
5.4
0.700000000000001
0.700000000000001 0.8 0.8
0.700000000000001
0.700000000000001
0.700000000000001
1.4 1.4
Euro area United States
(source of data: World Bank)
The puzzle
• “Freer markets, more rules” (Vogel 1996); “more capitalism, more regulation” (Levi-Faur 2005).
• An intriguing correlation between increased regulation and smaller government (more on this later)
Key idea for solving the puzzle (perhaps)
• Why do governments create independent regulatory agencies (IRAs)?– Commitment problem with respect to the long-
term preservation of the regulatory environment– Politicians need to solve this commitment
problem in order to attract campaign contributions and lobbists
• Regulatory capture problem:– Instead of capturing politicians special interests
can capture the (quasi-)independent regulators
• Complex dynamic between general public, politicians, IRAs, and special interests.
TAXONOMY OF ECONOMIC SYSTEMS
Theory
Taxonomy of economic systems
• Criteria of classification• Combinations of criteria lead to
mapping the possible (theoretical) systems
• Fitting actual cases on the conceptual map
• Classification => stage theory of historic transitions
Stages of development theory
Linear transitions:
Non-deterministic history: Tree of possibilities
Classification criteria
• Number of services provided by the state– Few– Medium– Many
• How regulated the market is:– Deregulated– Some regulation (regulation that preserves
competition, albeit in diminished form)– Strong regulation (favored statuses to firms,
monopoly grants)
Classification of economic systems
Number of services
provided by the
Type of stateIntervention
Small number of state services
Medium number of state services
Many state services
Minimal regulation of market participants (deregulation)
Free-market capitalism (Classical-liberalism)
Neoliberalism Provider state
Regulation of activities of market participants
InterventionismRegulatory capitalism
Welfare state
Favored status (monopoly grants) to certain of market participants
MercantilismCorporate or
State capitalismSocialism
TAXONOMY OF ECONOMIC SYSTEMS
Application to concrete cases
Operationalization based on the Heritage index
• Number of state services:– Size of government: fiscal freedom,
government spending
• How regulated the market is:– Openness of markets: trade freedom,
investment freedom, financial freedom– Regulatory efficiency: business
freedom, labor freedom, monetary freedom
Operationalization
Size of gov. < 2020 < Size of gov.
< 5050 < Size of gov.
Open of markets >80
Free-market capitalism (Classical-liberalism)
Neoliberalism Provider state
Open markets < 80Regulatory eff > 70
InterventionismRegulatory capitalism
Welfare state
Open markets < 80Regulatory eff < 70
MercantilismCorporate or
State capitalismSocialism
Regulatory efficient countries
Countries with regulated markets
Recent history, some regulatory efficient countries
Recent history, some regulatory efficient countries
Recent history, some countries with regulated markets
Long-term history, illustrative
History is non-deterministic
WHAT DETERMINES THE FUTURE OF CAPITALISM IN A GIVEN COUNTRY?
Theory
Stakeholders mapping: Three actors model
• Actors:– General public– Dominant corporations (corporations
with large market share)– Government
• Each have a distinct preference about the structure of the economic system.
• The outcome depends on their relative power.
Rent-seeking analysis: Who benefits from the economic system?
Opportunities for regulatory
capture
Small
Free-market capitalism (Classical-liberalism)
Neoliberalism Provider state
Large, small risk InterventionismRegulatory capitalism
Welfare state
Large, high risk MercantilismCorporate or
State capitalismSocialism
Rent-seeking analysis: Who benefits from the economic system?
Opportunities for regulatory
capture
(Which one you pick depends on your assumptions about the efficiency of government provided services)
(Small)The public benefits
Free-market capitalism (Classical-liberalism)
Neoliberalism Provider state
(Large, small risk)The dominant
corporations benefitInterventionism
Regulatory capitalism
Welfare state
(Large, high risk)The government
benefitsMercantilism
Corporate or State
capitalismSocialism
In what direction is the economic system moving?
Type of political system
Direction of economic system
Examples
Democracies with high transparency
Free-market capitalismNeoliberalismProvider state
Australia, Ireland, Canada, SwitzerlandBritain, Netherlands, Sweden
Democracies in which special interests are powerful
Regulatory capitalism
United States, France, Germany, Japan
Autocratic regimes where governments can afford protectionism
State capitalismBrazil, China, Russia
STATE CAPITALISM AND GLOBALIZATION
How do systems interact?
What is “state capitalism”?
• “A system in which the state functions as the leading economic actor and uses markets primarily for political gain” (Ian Bremmer, 2009)
• More specifically:– There is a free-market in consumer goods,
but a heavily regulated market in production goods (“commanding heights” thinking).
– Government-owned enterprises operate on the international or domestic markets with the purpose of increasing govt. revenues.
The Economist, January 2012
“The crisis of liberal capitalism has been rendered more serious by the rise of a potent alternative: state capitalism, which tries to meld the powers of the state with the power of capitalism. It depends on government to pick winners and promote economic growth. But it also uses capitalist tools such as listing state-owned companies on the stockmarket and embracing globalisation.”
Allan Meltzer, Why Capitalism? 2012
“The high tide of multilateral trade agreements to reduce
barriers to trade is probably past. Currently, the best
future hope is that the US and the EU won’t step up trade
restrictions to compensate for foreign labor and
environmental practices, …, and that China will stop
subsidizing or giving other advantages to Chinese firms.
Both seem a vain hope. Trade protectionists and
nationalists everywhere seem eager to end the regime
that brought 60 years of global expansion and rising living
standards.”
• The rent-seeking theory of state capitalism =>state capitalism is nothing but a modern form of mercantilism
• One can understand state capitalism and project its potential evolution based on what we know from previous rent-seeking societies.
Our thesis
Classical perspective on mercantilism
“[M]ercantilists, whatever the period, country, or status of the particular individual, would have subscribed to all of the following propositions: (1) wealth is an absolutely essential means to power,
whether for security or for aggression; (2) power is essential or valuable as a means to the
acquisition or retention of wealth; (3) wealth and power are each proper ultimate ends of
national policy; (4) there is long-run harmony between these ends,
although in particular circumstances it may be necessary for a time to make economic sacrifices in the interest of military security and therefore also of long-run prosperity.” (Vinge 1949)
The rent-seeking thesis: An incentives driven perspective
• The best way to understand mercantilism is the “rent-seeking society” theory (Ekelund & Tollison).
• Real socialism was also a form of mercantilism (Boettke & Anderson).
• Our thesis: State capitalism merely continues real socialism in a slightly more liberalized form.
• Family of systems (mercantilism, real socialism, state capitalism): rent-seeking societies.
SOME IMPLICATIONS
At the level of individual countries
• The future of capitalism depends on the balance of power between the general public, the dominant corporations, and the state.
• Deregulated economies (be they free-market capitalist, neoliberal or provider states) are the outcome of transparent and competitive democracies.
At the globalized level: the impact of state capitalism is uncertain
• State capitalism looks a lot less impressive once we see it as a form of mercantilism
• Mercantilism has already lost twice against market capitalism– The 19th century emergence of liberal
capitalism– The collapse of real socialism in 1980s-1990s
• However, the future of state capitalism ultimately depends on whether a viable free market alternative system is actually provided – i.e. do liberal capitalist countries preserve their system?
Implications for globalization
• The current mix of market capitalism, regulatory capitalism, crony capitalism, and state capitalism is clearly an improvement in the global economy mix from the Cold War past divide.
• However, the bigger interdependence introduces new and larger inefficiencies within the market capitalist systems.
• This creates the temptation for protectionism.
Bremmer’s and Meltzer’s warnings against protectionism hold
• “In order to ensure that the free market remains the most powerful and durable alternative to state capitalism” liberal democracies should be “leading by example in promoting free trade, foreign investment, transparency, and open markets” (Bremmer).
• “Trade protectionists and nationalists everywhere seem eager to end the regime that brought 60 years of global expansion and rising living standards. This is a major change in the international landscape. It threatens the main source of higher living standards everywhere.” (Meltzer)