October 12, 2018 / 2:51 PM / a year ago

Breakingviews - Review: Forget robots, capitalism is the future

NEW YORK (Reuters Breakingviews) - “Capitalism in America: A History” tells a great story at pace. Its 450-odd pages are packed with observations about entrepreneurs, organized corporations, robber barons, the benefits businesses can bring societies and their owners and how governments interact with companies. Former Federal Reserve Chairman Alan Greenspan and Adrian Wooldridge of The Economist have penned a lively yarn, replete with quirky and breathtaking details.

A television screen shows the days losses on the floor of the New York Stock Exchange in New York, U.S., February 5, 2018. REUTERS/Brendan McDermid

There’s no doubt the United States has been a powerhouse – indeed, the powerhouse – of capitalism. Its economy eclipsed Britain’s before the end of the 19th Century and was unchallenged until China’s recent rise. Despite past glories the authors perceive a fading of dynamism in today’s America. Yet their solutions, chiefly less welfare and far less regulation, lack the adaptability of the human subjects the book celebrates.

American capitalism was lucky in both the era of the nation’s origins and its parentage, Greenspan and Wooldridge argue. It was the first country born in an age of growth, after centuries of low to non-existent economic development across large parts of the world. As to parentage it’s better, the authors write, to be “the child of the country that produced the first industrial revolution … than, say, the child of Spain or Belgium.”

As a generalization that may be right. But it’s one of the sweeping statements throughout the book that jar from time to time. For example, entrenched attitudes about women in the workplace changed with “remarkable speed” starting in the 1960s. There’s still a wage gap, but that’s OK because it’s shrinking, “if not as fast as women would like.”

Such objections aside, “Capitalism in America” tells a deeply researched tale of second-to-none entrepreneurialism, from the colonial period onward. Consider Gideon Allen & Sons, a syndicate in Massachusetts, which made returns of 60 percent a year for much of the 19th Century by financing whaling voyages. It’s a feat the authors justifiably suggest may be the best performance of any firm in American history.

Past booms in railways, steel and oil get similar treatment. John Rockefeller, Andrew Carnegie, J.P. Morgan and others emerge larger than life. The authors don’t give the plutocrats a completely free pass on the massive wealth they accumulated. But the main focus is on the benefits their giant organizations provided for everyone else in the form of the hugely increased availability of commodities – whether transport, oil, metal or money – at vastly reduced cost. These benefits stoked periods of surging growth that undoubtedly lifted all boats.

The book gives due consideration to the downsides of Schumpeterian “creative destruction” including slumps and crashes, lost jobs, disruption and dislocation. There are intriguing discussions of changing patterns of share ownership, the role played by the advent of limited liability companies, the appearance of bank-supported mergers, and many other corporate manipulations.

Greenspan and Wooldridge also tick through the changing attitudes to the role of the state, and how different political parties adopted small- or big-government policies at different times.

There’s a sense, though, that any dodgy patch or downturn is almost always due to a failure of something other than capitalism. This is the case right up to the financial bubble that ended in the 2008 crisis, which Greenspan’s Fed helped to fuel.

After a long but sluggish recovery, Greenspan and Wooldridge worry U.S. entrepreneurship is in decline and the economy heading for stagnation. They concede that others have feared this in the past, only to be proved wrong by the same can-do spirit the book lauds. Yet they are concerned that the government is presently the problem, for example paying out unsustainable amounts to over-65s for Social Security and healthcare.

Reforming these entitlements is a big political challenge, but the authors at times want it both ways. They suggest Washington’s bailouts of the financial sector in 2008 were preferable to letting banks and insurers fail. Presumably, that limited the damage to the rest of the economy. But if the government acting to preserve the financial status quo isn’t the exact opposite of capitalist creative destruction, it’s hard to say what is.

Another big-government millstone is red tape, the authors argue. The Dodd-Frank Act, which tightened up many banking rules after the crisis, should be dispensed with and replaced with a simple, higher capital requirement.

Anyone who has spent time in America is familiar with unnecessary rules. But this supposed solution to declining dynamism neglects the fact that much regulation is a response to capitalists pushing boundaries. Just consider how ride-hailing firm Uber took on licensed taxi operators in its take-no-prisoners expansion. The authors welcome cleaner cities, but it is a stretch to believe that was purely the work of business folk, rather than government.

Technological advances over the centuries have dramatically boosted productivity, a favorite topic of Greenspan’s. There’s no shortage of new tech these days, either. But the book doesn’t much consider whether advances in artificial intelligence and robotics, for instance, demand different responses than the rather traditional ones it proposes.

From Alexander Hamilton to Henry Ford, General Electric’s Jack Welch, the Google founders and myriad capitalists in between, “Capitalism in America” is a thorough review of the good and some of the bad of U.S. business success – and its versatile if not always likeable proponents. That makes the book valuable, instructive and surprising. The authors’ prescriptions are more predictable, though. That’s a disappointment.


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