Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth
Western capitalism is in crisis. For decades investment has been falling, living standards have stagnated or declined, and inequality has risen dramatically. Economic policy has neither reformed the financial system nor restored stable growth. Climate change meanwhile poses increasing risks to future prosperity.
In this book some of the world’s leading economists propose new ways of thinking about capitalism. In clear and compelling prose, each chapter shows how today’s deep economic problems reflect the inadequacies of orthodox economic theory and the failure of policies informed by it. The chapters examine a range of contemporary economic issues, including fiscal and monetary policy, financial markets and business behaviour, inequality and privatisation, and innovation and environmental change. The authors set out alternative economic approaches which better explain how capitalism works, why it often doesn’t, and how it can be made more innovative, inclusive and sustainable. Outlining a series of far-reaching policy reforms, Rethinking Capitalism offers a powerful challenge to mainstream economic debate, and new ideas to transform it.
1. Rethinking Capitalism: An Introduction
MICHAEL JACOBS AND MARIANA MAZZUCATO
IN NOVEMBER 2008, as the global financial crash was gathering pace, the 82-year-old British monarch Queen Elizabeth visited the London School of
Economics. She was there to open a new building, but she was more interested in the assembled academics. She asked them an innocent but pointed
question. Given its extraordinary scale, how was it possible that no one saw the crash coming?
Hereditary sovereigns are not normally given to puncturing the pretensions
of those in charge of the global economy, or of the economists paid to
understand it. But the Queen’s question went to the heart of two huge
failures. Western capitalism came close to collapsing in 2007–2008, and has
still not recovered. And the vast majority of economists had not understood
what was happening.
This book is about both failures. On the one hand the capitalist economies
of the developed world, which for two hundred years transformed human
society through an unparalleled dynamism, have over the past decade looked
profoundly dysfunctional. Not only did the financial crash lead to the deepest
and longest recession in modern history; nearly a decade later, few advanced
economies have returned to anything like a normal or stable condition, and
growth prospects remain deeply uncertain. Even during the pre-crash period
when economic growth was strong, living standards for the majority of
households in developed countries barely rose. Inequality between the richest
groups and the rest of society has now grown to levels not seen since the
nineteenth century. Meanwhile continued environmental pressures, especially
those of climate change, have raised profound risks for global prosperity.
At the same time, the discipline of economics has had to face serious
questions about its understanding of how modern economies work. What made
the financial crisis such a shock—in two senses—was not simply that very few
economists had predicted its coming. It was that over the previous decade the
mainstream view was that policy-making had essentially solved the fundamental
problem of the business cycle: major depressions, it was believed, should
now be a thing of the past. And economic policy since the crisis has been no
more successful. The orthodox prescription of ‘fiscal austerity’—cutting public
spending in an attempt to reduce public deficits and debt—has not restored
Western economies to health, and economic policy has signally failed to deal
with the deep-lying and long-term weaknesses which beset them.
The core thesis of this book is that these failures in theory and policy are
related. Mainstream economic thinking has given us inadequate resources to
understand the multiple crises which contemporary economies now face. To
address these crises, we need a much better understanding of how modern
capitalism works—and why in key ways it now doesn’t. A reappraisal of
some of the dominant ideas in economic thought is required. And in turn
this needs to inform a set of new directions in economic policy-making
which can more successfully tackle modern capitalism’s problems.
Each of the chapters of the book therefore addresses both a key economic
problem and the orthodox economic way of understanding it. The authors
offer a different and more sophisticated approach to economic analysis, and
from this generate new policy solutions. To do this they draw on important
schools of economic thought whose powerful understandings of capitalist
systems have been largely forgotten or sidelined in mainstream debate. In
each case their conclusion is that capitalism can be reshaped and redirected
to escape its present failures. But this can only be achieved if the mental
frameworks of economics are rethought, and new approaches to policy
About the Authors
RM Philips Professor
Science and Technology Policy
University of Sussex
Financial Markets Program Director
Initiative for Policy Dialogue (IPD)
Stephany Griffith-Jones is an economist specialising in international finance and development, with emphasis on reform of the international and national financial system, especially in relation to financial regulation and global governance. She is Financial Markets Director at the Initiative for Policy Dialogue, Columbia University. Previously she was Professorial Fellow at the Institute of Development Studies at Sussex University. She was Director of International Finance at the Commonwealth Secretariat and worked at UN DESA and ECLAC. She was senior consultant to governments in Eastern Europe, Latin America and Africa and many international agencies, including the World Bank, the IADB, the European Commission, UNDP and UNCTAD. She was a member of the Warwick Commission on financial regulation. She currently is theme leader on finance in the ESRC /DFID growth programme for LICs, especially African ones. She has published over 20 books and many scholarly and journalistic articles. Her books include Time for the Visible Hand, Lessons from the 2008 crisis, edited jointly with José Antonio Ocampo and Joseph Stiglitz.
Foundation for European Progressive Studies (FEPS)
Born near Milan, Italy, in 1977. Giovanni is an Economic Adviser at the Foundation for European Progressive Studies.
He holds a PhD in economics from the School of Oriental and African Studies (SOAS), University of London. His PhD research focuses on financial and currency crises in emerging markets. During his PhD studies Giovanni worked as a Teaching Fellow at SOAS, where he taught on courses of International Economics, Political Economy of Development, and Comparative Growth.
After his PhD studies, Giovanni worked at the Centre for Development Policy and Research (CDPR) where he conducted policy and research work on progressive economic policies, in particular on growth and employment, financial and banking sector reforms and capital controls.
At FEPS his work focuses on the sustainable economy pillar which concentrates on promoting progressive European economic policies.
Initiative for Policy Dialogue (IPD)
Joseph E. Stiglitz is co-President of the Initiative for Policy Dialogue, and Chairman of the Committee on Global Thought at Columbia University. He is University Professor at Columbia, teaching in its Economics Department, its Business School, and its School of International and Public Affairs. He chaired the UN Commission of Experts on Reforms of the International Monetary and Financial System, created in the aftermath of the financial crisis by the President of the General Assembly. He is former Chief Economist and Senior Vice-President of the World Bank and Chairman of President Clinton’s Council of Economic Advisors. He was awarded the Nobel Memorial Prize in Economics in 2001.
Technology and Development
University of Tallinn
Carlota Perez. Venezuelan-British. Researcher, lecturer and international consultant, specialized in the social and economic impact of technical change and in the historically changing conditions for growth, development and competitiveness
She is Professor of Technology and Development at the Technological University of Tallinn, Estonia; in England she is Senior Visiting Scholar at the London School of Economics (LSE) and Centennial Professor from Oct 2013; Research Affiliate at CFAP/CERF, Cambridge Finance, Judge Business School, Cambridge University, and Honorary Professor at SPRU, Science and Technology Policy Research, School of Business, Management and Economics, University of Sussex.
Her articles from the early 1980s and her book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages [Elgar 2002] have contributed to the present understanding of the relationship between technical and institutional change, between finance and technological diffusion and between technology and economic development.
Some of her papers and books are used as study material in post-graduate courses in universities in many countries.
As consultant and lecturer she has worked for various public and private organizations, for major corporations and governments in Latin America, North America and Europe as well as for the EU, the OECD, the UN and several multilateral agencies.
She is frequently invited to participate as international keynote speaker in academic, public policy and business events.