Interview: Capitalism reset


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Interview by Gene Zasadinski

As American humorist Mark Twain once famously quipped, “The report of my death was an exaggeration.” The same might be said about capitalism. Through crisis after crisis, through boom cycles and busts, capitalism manages to reinvent itself and prevail. In this interview, economist and journalist Anatole Kaletsky shares his unique perspective on the resilience of capitalism and on the current state of our economy and its prospects for the future.

GZ: In your new book, Capitalism 4.0, you argue that three periods of capitalism have come and gone and a fourth is on the horizon. Can you elaborate on that?

AK: The capitalist system started in the middle of the 18th century. The first period was one where economics and politics were completely separate and government had no economic responsibilities except to raise a minimum amount of taxes to wage wars. That period came to an end in the 1930s because the system had outlived its usefulness. Social change, the First World War, and the Great Depression destroyed the economic basis of that system. So, capitalism reinvented itself. Capitalism 2 lasted about 40 years, going through various sub-versions, starting with the New Deal and continuing on through the war economy and the postwar Keynesian golden age. A crisis of inflation that began in the late ’60s, coupled with oil shocks and the Vietnam War, brought this phase of capitalism to an end. But again, the capitalist system reinvented itself, and from 1979, with the election of Margaret Thatcher in Britain and then of Ronald Reagan in America, another version of the capitalist system, Capitalism 3, arose.

GZ: So the differences among these phases of capitalism were essentially different dynamics between government and markets?

AK: That’s right. In the first phase, government and markets were completely separate. Then from the 1930s onward, there was a belief that the market had failed and that government had to be brought in to fix it. After about 40 years, the opposite view took hold. This time the conclusion was that government is always wrong and that the market is always right. That was Capitalism 3.0.

GZ: So, what does Capitalism 4.0 look like?

AK: The essential feature of this new phase will be a much more skeptical attitude, both toward the market and toward the government, and this is quite empowering. To recognize the fallibility of both political and economic institutions doesn’t mean everything is going to collapse. What it does mean is that both these sets of institutions have to undergo improvements. If something’s fallible, if something’s imperfect, by definition it can be better, but also, they have to be balanced against one another. We can’t rely solely on the market or the government. We have to create a system of checks and balances, where the market prevents the government from becoming too powerful and the government prevents the market from going off on a tangent and making the sort of catastrophic mistakes that we’ve seen particularly over the last ten years.

GZ: Clearly, Capitalism 4.0 sounds like a distinctive phase, yet the laissez-faire and the Reagan–Thatcher phases seem pretty much the same, or are there important differences?

AK: That’s a very interesting point. The ideals, if you like, are the same, but, actually, if you look at the Capitalism 3 period, the 35 years from the mid 1970s until 2010, you had an infinitely greater role and responsibility for government than existed when the role of government consisted of nothing more than running a standing army. The 1930s taught us that it was impossible for a capitalist market economy to work for an extended period without some degree of government intervention, at least in monetary and fiscal policy. The idea that government could just completely get out and allow markets to stabilize themselves was no longer plausible. So I think even in the most radical periods of Thatcher and Reagan, there was never really any pretense of going back to a market economy that was totally unregulated and totally without government intervention.

“I think the biggest risk to the world, not just to America or Europe, is to continue with business as usual.”

GZ: The previous phases of capitalism seemed to provide the right solution at the right time. Will Capitalism 4.0 do the same?

AK: I think if the attempt to reconcile politics and economics, to make them work together rather than working against each other, if that is seriously attempted, then I think it probably could work, but I may be wrong about that. It may be that there is an intrinsic incompatibility, if you like, between democratic politics and the requirements of the market system in the modern world, and, more likely, even if it could work, it may be that people aren’t going to try it. I think the biggest risk to the world, not just to America or Europe, is to continue with business as usual. If that happens, another version of “new” capitalism, such as state-run capitalism, could prevail.

GZ: But aren’t there basic flaws in state-run capitalism?

AK: Of course. There are basic flaws in every system. It’s a question of how big the flaws are and how they are dealt with. There’s no question that a totally state-dominated market system, where you have central planning and a bit of markets on the side, is doomed to failure. But there certainly is a case to be made for some government intervention in private markets.

GZ: What’s that?

AK: Government intervention and private markets have always coexisted because of private property. Private property exists only if you have a government to protect it. So the idea that somehow economics and politics are completely independent has never been valid. But new relationships between government and the private sector are needed. In some cases this will mean a bigger role for government, but in other cases it will mean a smaller role. In other words, government is going to get bigger and smaller at the same time, and there’s nothing contradictory about that.

Anatole Kaletsky is editor-at-large and principal economic commentator of The Times of London. An award-winning writer and sought-after speaker, Mr. Kaletsky is author of Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis, published by PublicAffairs.

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