Good Capitalism and Bad Capitalism

By Carlos Alberto Montaner

The OAS, which is practically useless even though it is presided by José Miguel Insulza, a competent politician, should realistically accept its condition as a debating society and forget any other glorious missions -- which it seldom brings to fruition anyway. It is not serious behavior to sign solemn commitments, such as the Democratic Charter, and then blissfully ignore what is happening in Venezuela, Bolivia or Ecuador (and what's beginning to happen in Nicaragua), where the republican institutions, fragile supporters of the rule of law, are being systematically crushed by the forces in power.

How might Mr. Insulza honestly earn his paycheck at the head of a modest and small, but reasonably useful OAS? For example, he might summon the Latin American presidents to debate the great moral, political and economic issues that shake the entire region, from the Río Grande to Patagonia: Why do Latin Americans constitute the poorest and most backward segment of the Western world? Why do its universities and technological centers -- some of them 400 years old -- seldom come up with significant findings? Why does half of the population of Latin America live in wretched poverty? Why, in sum, has Latin American capitalism produced such poor results when compared, for example, with the success of the Scandinavian countries or Canada and the United States, the two other European expressions on the other side of the Atlantic?

Actually, almost all those questions were indirectly answered in an excellent book, Good Capitalism/Bad Capitalism, by U.S. economists William J. Baumol, Robert E. Litan, and Carl J. Schramm, published recently by Yale University Press. The title adds something else, to explain the subject: “The economy of growth and prosperity.” And the theory is easy to understand: the existence of private property and a market does not necessarily generate development. Haiti and Holland have markets and private property, but in the former country the people are starving to death, while in the latter the big concerns are obesity and excessive longevity.

According to the authors' persuasive explanation, there is not just one capitalism; there are four. One, the capitalism guided by the State, the mercantilist capitalism, where the officials pick the winners (usually their friends) and the hapless losers. Two, the oligarchical capitalism, very similar to the previous one, where a small group of wealthy people use the State as a fiefdom and turn economic activity into a private estate for their own benefit. Three, grand capitalism, or the capitalism of the large enterprises, where the power of the economic giants manipulates society for the benefit of its enormous and ubiquitous interests. And four, entrepreneurial capitalism, where the State does not assign privileges and limits itself to creating the conditions for the incessant emergence of enterprises that rely on open and competitive markets, governed by a breathless search for innovation, quality and better prices with which to conquer consumers.

The latter is the “good capitalism” the book talks about and, even though it does not exist in a pure state anywhere, it is evident that a relation exists between this model of production and good economic performance. In various ways and to varying degrees, this is what happens in the world's 20 most prosperous and developed countries. Of course, the authors don't promise that entrepreneurial capitalism will bring a more just and equitable world, and they even defend the virtues of imbalance as a part of the destructive impulse that constantly regenerates the market. But they do point out that the nations that practice it have the fewest inequalities. The Gini index, which measures the differences of income among nations, demonstrates that a society such as Denmark, the paradigm of entrepreneurial capitalism, has an income-distribution index twice as equitable as the Latin American countries'.

As it happens, Good Capitalism/Bad Capitalism says nothing that's radically new, but it contributes something very important to the debate: a very orderly and convincing way to present the arguments, without resorting to the complicated jargon of economics. It is a book for the layman -- for example, with three or four exceptions, for Latin American presidents. I hope Insulza finds the gumption to read the book to them slowly, loudly and clearly. They would benefit. It's never too late to learn a few things.

January 26, 2007

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