The 2008 world financial crisis raised questions about capitalism’s viability.
Two authors, Eric Beinhocker, executive director of the Institute for New Economic Thinking, and Nick Hanauer, an entrepreneur and venture capitalist, have given us a brilliantly different take on capitalism in an article entitled ‘Redefining Capitalism’ in the September issue of McKinsey Quarterly.
The genius of capitalism, they maintain, is less its ability to efficiently allocate resources, than its ability to create incentives for coming up with solutions to human problems and making those solutions widely available. They believe that GDP is a misleading criterion of wealth. “Ultimately, the measure of the wealth of a society is the range of human problems it has solved and how available it has made those solutions to its people.”
But capitalism, they suggest, while highly effective at solving problems, is necessarily inefficient because the experimentation, risk-taking, and failure that are essential to effective problem solving is, like evolution, woefully wasteful.
The authors also suggest that seeing profit as the primary aim of a business puts the cart before the horse. They prefer to see businesses as society’s problem solvers and not simply as vehicles for creating shareholder returns .
The authors reject both statism and unfettered capitalism. They make a strong case for sensible government intervention in the economy: there are many problems that only governments can solve, and we need public investment in education, technology and innovation as prerequisites of growth and prosperity. If society doesn’t invest adequately in its citizens and doesn’t provide equality of access to opportunities, the virtuous cycle of growth and prosperity is broken. At the same time they also suggest that governments should focus on solving problems and our public institutions should have incentives to innovate and space to experiment.
All this is highly relevant to Barbados.