Share this article:
Redefining Capitalism in Global Economic Development
Although the collapse of the Soviet Union in the 1980s was thought as a step towards world peace and development, there are a few global trends that have been troubling the world economy. Firstly, the monopoly on oil exports from OPEC countries meant that there was huge export surplus among the oil exporting countries, which was not filtered back to the rest of the world, but had supplied resources of extremist activities and terrorism, thereby threatening the peaceful world. Secondly, the global investors had been generous to invest in China since its reform in the early 1980s.
By today, China holds the largest world reserve and trade surplus, yet ideologically it has not made any changes. Thirdly, the European Union has expanded to incorporate many weaker European countries, but their huge national debts had plagued the further development among key EU countries. Finally, the prolonged use of ultra-low interest rate in the US and other key world economies had resulted in much distortion in monetary policies, leading to several disturbing economic trends, including the loss of the store of value function of money, rising speculation in stocks and real estate and properties.
These trends are used as a starting point to analyze the global economy, as numerous questions have been asked, while answers have not been forthcoming. Typical questions include the confusion in ideological trends, the fall or end of capitalism, the fall of leadership by the advanced countries and so on. Indeed, there have been a lot of confusion in understanding the global economy, as there is a lack of analysis in dissecting the ingredient of different issues. For example, are economic concepts, tools and policies been incorrectly used for political ends? And political wrongdoings have often been blamed on economic failures. Is the rise of national debt an economic choice or a poor political judgement? Would the outflow of refugees a problem of the parent government, or the lack of goodwill on the part of the host government?
Confusions arise when a lack of understanding between ex-ante decisions and ex-post outcomes, and from a lack of understanding on the consequences between supply-lead and demand-lead policies. My book, Redefining Capitalism in Global Economic Development, makes a bold attempt to analyze the world economy using a refined framework of political economy, and aims at providing explanations at the root level of many global problems. Understanding the problems is the first step in identifying the solution.
Each of the five sections of the book represents a theme in contemporary political economy. Together, they bring a refreshed understanding on modern capitalism as a theme to explain the world economy. Indeed, many of the economic and political failures in the world economy can be explained by the presence of excessive socialist policies and the adoption of welfare approach in drafting economic policies. The ideology of socialism turns out to become a mean to control, while capitalism adheres to freedom so that individuals can perform their best.
It Begins with the Individual
There has been many misunderstanding or lack of understanding in the virtue of capitalism. The discussion of capitalism shall begin with the discussion of the individual, as individuals form the resource basis of all societies. The economics is that individuals have different endowments and would perform differently. The education system aims to enrich the endowment of everyone, and trains individuals for different jobs, which are then paid differently due to variation in individual productivity. The politics, unfortunately, addresses such differences as inequality, and attempts to use political terminologies on economic outcomes. Policy distortion arises as politics is included in economic decision.
The discussion in Section One, Capitalism: Theories, Concepts and Behavior, focuses on the need to maintain individual freedom and that individuals are their own economic masters. Differences is economic outcomes reflect the rewards and productivity of individual endowment. The correct politics is to ensure the greater of economic opportunities so that more individuals can have a better chance in enhancing their endowment. The idea is to nurture and promote individual ability, rather than penalizes the able individuals. The wrong politics is to allow power and authority in the hands of government officials, thinking that the government can bring equalization in economic outcomes, but not knowing that the presence of government intervention shifts inequality from economic inequality to political inequality. It is the rise of equal economic opportunity that counts. Poverty is not the outcome of inequality, but the need to raise individual endowment and expand economic opportunity.
While no economy can do without a government, this section discusses the developmental, monitorial and re-distributional roles of the government. There has been debate on the size of the government, but its effectiveness should be the more critical issue. How far the government is promoting economic development is crucial in opportunity expansion. The monitorial role simply ensures societal law and order. The re-distributional role is controversial, as it often involved more with political judgment than economic judgment. Ultimately, the role of the government is to promote and not to restrict. The adoption of supply-side economics enlarges the economic pie so that expansion of economic opportunities can raise the economic welfare of more individuals. Redistribution through supply-side policies is preferable to demand-side approaches.
This section draws the distinction between business leaders whom should maximize business gains and profits, and political leaders whom should maximize economic opportunities through the various roles and to serve the electorates by maximizing societal goods. The capitalist mode of production ultimately enables individuals to show their best, and the revitalization of individual abilities provides sustainability to capitalism, as one wave of economic opportunities and activities replaces another in the process of economic development.
Economic activities produce “relative” outcomes as parties do benefit from an economic outcome differently. Political activities produce “absolute” outcomes, and the gain of one would be the loss of another in the political game. As such, economic activities are the preferable form of human activities, and capitalism is simply the best vehicle through which relative economic activities are conducted.
If you would like to pre-order a copy of Redefining Capitalism in Global Economic Development, please visit the Elsevier website here. Apply discount code STC317 and save up to 30% off the list price and free global shipping. The book will also be available upon publication via ScienceDirect.
Economics & Finance
In the 21st century, both personal fortunes and global economies are tied more tightly than ever to corporate businesses and financial markets. For scholars and professionals, a solid grounding in economics and finance is critical, as is up-to-date knowledge of technology, law, and corporate structures and practices in these swiftly evolving fields. Elsevier provides content written by leading experts on key topics of currency exchange, bank regulation, mergers and acquisitions, entrepreneurship, real estate, environmental economics, industry development, project finance, and more. We also produce essential handbooks on the economics of health care, agriculture, education, and a wide spectrum of other areas of public policy.