Dani Rodrik on Capitalism 3.0

This is the theme of Rodrik's LSE lecture.  Having been a visitor at the LSE twice (2004 and 2006), these talks are great experiences, and I am sure the community will rally around Rodrik's theme and the conversation will be very high quality.

From what I can gather, Rodrik is making an evolutionary argument about the institutional infrastructure of capitalism from Adam Smith's minimal state, to John Maynard Keynes's regime of demand management, to XXX 's change to account for the dynamics of globalization.  Capitalism 3.0.

Comments

[Dirtyrottenvarmint]

What a crock of horseshit. Here's another one for ya, it's been a generation or more since the Holocaust, so we need to "reinvent anti-Semitism for a new century, blah, blah, blah". After all these are modern times, and even the Church has reconsidered its views on Jewish peoples, so we need to recognize the evolution of what it means to lock someone up in a box and kill them because of their religion or ethnicity. These things have to "evolve" after all. [I do not at all advocate this. It would be foolish, stupid, immoral, and wrong.]

Capitalism is a WORD. It has a DEFINITION. It already has a meaning. Neither Rodrik nor any other idiot talking out of their stinkhole can "reinvent" it. All they can do is lie and misrepresent what it means.

Rodrik is welcome to propose a new economic theory, model, or term, and is welcome to do what normal people who are not clueless half-brained idiots do when they invent something NEW - coin a NEW NAME for it.

[Arare Litus]

It will be interesting to hear this once it goes up.

"Just as Adam Smith’s minimal capitalism was transformed into Keynes’ mixed economy, we need to contemplate a transition from the national version of the mixed economy to its global counterpart."

This is interesting - some believe that the shift from minimal capitalism to a mixed economy was a poor decision. Perhaps you should right a post on the characteristic features of both: the lowdown, what structures existed, what was excluded, good/bad points. I am not sure what Smith's minimal state looked like - for example, in our vernacular what would the GDP captured by government be in Smith's ideal?

Our evolution is a mixed bag, and our wealth allows us to carry mistakes longer than we should - or seriously harm a minority as the majority has it so well and are insulated from the effects.

"Sometimes, this will require extending institutions outward from nation states and strengthening global governance"

Since we see this now (law of the sea, etc.) there is definitely a need, and if interactions continue to increase we will need more. Right now things are voluntary, and punishment is usually exclusion or some sort of internal court - i.e. anarchic contracts. I take it the Rodrik will confront the flaws in this, and propose moving towards more "traditional" (coercive) measures in order to address people who do not conform (such as Japan whaling for "research purposes"). This goes directly to the heart of the ideas of anarchy - how to deal with people where voluntary measures do not work, and yet are important. For example, if Japan were about to kill the last pod of whales for a tasty "research" endeavor, and every other nation was in an anarchic treaty to preserve whales (say, for their beauty and in since it was found that fish stocks have long term stability due to whales) then what? From what I can tell about anarchy, too bad - there goes the whale to the bully: after all, what moral right do we have to "coerce" Japan?

Pretalk - I am excited. A lot of key issues come to the fore: for Austrian's this should be exciting also - anarchy and minimal markets are sharply highlighted by this theme of market evolution. What losses can be expected? What gains? Can anarchy handle tragedy of the commons when there is a malicious player? Since in evolutionary terms we should always expect a malicious player to come in if such behaviour is rewarded how does anarchy deal with this [my understanding of anarchy is limited, but to me this is the key limitation, and from limited readings seems to the the elephant in the room...].

[Arare Litus]

By "right a post" on the minimal versus our state, I mean "write"!

[Greg Ransom]

"capitalism 3.0" -- sounds like a PR gimmick.

I don't know his work. What makes Dani Rodrik so popular among some academics?

[Evan]

I agree with Greg, "Capitalism 3.0" sounds pretty hyped up, especially if it just means world government (as the advert implies). But, more basically, I think its incorrect to talk about different "evolving" meanings for capitalism. Different people use it in different ways even today, some for free markets and some for regulated markets (with varying degrees in between).

But more importantly, news flash!: globalism is not brand new. There have been international treaties for as long as there have been governments to make them. It seems to me that there are too many people who fail to recognize that globalization (the international division of labor) is really just the symptoms of 1) cheap transportation, 2) reduced barriers to trade (not necessarily permanent), and 3) the knowledge economy (which becomes increasingly less relevant as it feeds more and more on itself). To suggest this is somehow a new paradigm which needs a new form of economic analysis is symptomatic of a fundamentally unsound method, out of which will be produced another fundamentally unsound method.

[Danny Shahar]

I'm just waiting to get my hands on a copy of XXX's latest treatise...I'll try to read it after I finish The Fast and the Furious 5: Race to the Bailout Funds, The Chronicles of Riddickulous Deficit Spending, and of course, Boiler Room. The Vin Diesel school of economics shall be a force to be reckoned with in Capitalism 3.0!

[Arare Litus]

Evan;

"To suggest this is somehow a new paradigm which needs a new form of economic analysis..."

Who is suggesting it is new? The FIRST LINE of the abstract is "Capitalism needs to be reinvented for a new century in which the forces of economic globalization are much more powerful than before." - note the "more powerful than before." And who is suggesting a new form of economic analysis? The SECOND LINE of the abstract ends with "...we need to contemplate a transition from the national version of the mixed economy to its global counterpart.", i.e. a discussion of institutions, not analysis.

I will reiterate my response:
- what are the lessons from "1.0" and "2.0"?, what key differences exist? What key gains/losses in the transition?
- can anarchy address malicious action from an outsider?, if so, how does one distinguish between an "anarchy" that does so, and a normal state?

As Austrians seem to pride themselves on thinking about liberty, anarchy, and minimal economic systems I hope to see some interesting discussion regarding these points.

[Evan]

Arare:

My apologies for being unclear. You are right to say that Rodrik is suggesting we need a new paradigm rather then new analysis. However when he mentions the transformation from 1.0 to 2.0, he is conflating theory with practice:

"Just as Adam Smith’s minimal capitalism was transformed into Keynes’ mixed economy, we need to contemplate a transition from the national version of the mixed economy to its global counterpart."

It seems silly to suggest there was a time and place where the 'economic institution' was 'Adam Smith’s minimal capitalism'. States have historically been bigger and more intrusive than what Adam Smith proscribed. Similarly with 'Keynes’ mixed economy', since he wrote his general theory, states have only instituted half his plan. They conveniently ignore the part where he says states should save(!) during a boom so that they can spend during the bust. Also Keynes' said that a zero interest rate policy would required direct government supervision of investment, instead what states have done is pushed down rates and let the quasi-private banks decide what to do with the money.

Thus, he is talking about theories as if they were institutions. The main way those theories are institutionalized is as an apology for action that the government wants to perform anyway. Its confusing. But seeing as he is saying that theories are institutionalized, I take that to mean he is suggesting we need a new THEORY (method of analysis?) which can be institutionalized to create Capitalism 3.0.

Hopefully somebody can answer your question about the differences between 1.0 and 2.0, because as far as I can see they are just numbers to make Rodrik's talk seem more appealing. Maybe it is, but from the description, I doubt it.

[Arare Litus]

Evan,

"Thus, he is talking about theories as if they were institutions."

I agree he is making a pretty strong simplification, but for a talk to discuss a long evolution and transitions one pretty much needs to collapse everything down to get to the key points. Take the 1.0 and 2.0 as in the platonic realm, which reality "approximated" 1.0 and 2.0 better at various times, with the general shift from 1.0 to 2.0. I think Rodrik is now trying to visualize a new Platonic ideal that we should consider and try to move towards.

"Hopefully somebody can answer your question about the differences between 1.0 and 2.0, because as far as I can see they are just numbers to make Rodrik's talk seem more appealing. "

Yeah, were are the insiders? Any insights for us? To me 1.0 & 2.0 best thought to be in the Platonic sphere, and are meaningful and reality once mirred 1.0 and then 2.0, more or less, at least in terms of rough understanding as well as the belief in what was ideal during that time.

For example, I think government now captures something like 40% of GDP - I think that many claim that 25% is near "optimal" in order to supply basic services, but not too big where the government is encroaching on areas that it does not have a proper place in and dominating the economy/society (i.e. limiting freedom, limiting growth and experiments, wasting resources, etc. etc. etc.). But I am not sure what the 1.0 and 2.0 ideals are - I assume 1.0 was lower than this, say 10%, and the 2.0 was higher than this, say 50%. Pretend that these numbers are correct, our ~ 40% situation indicates 2.0 is winning in terms of how politicians/elites think.