The many shades of capitalism

Economists classify capitalism into different groups using various criteria. Capitalism, for example, can be simply sliced into two types, based on how production is organized. In liberal market economies, the competitive market is prevalent and the bulk of the production process takes place in a decentra-lized manner akin to the free-market capitalism seen in the United States and the United Kingdom. Coordinated market economies, on the other hand, exchange private information through non-market institutions such as unions and business associations — as in Germany and Japan (Hall and Soskice, 2001).

More recently, economists have identified four types of capita-lism distinguished according to the role of enterpreneurship (the process of starting business) in driving innovation and the insti-tutional setting in which new ideas are put in place to spur eco-nomic growth (Baumol, Litan and Schramm, 2007).

In state-guided capitalism, the government decides which sectors will grow. Initially moti-vated by a desire to foster growth, this type of capitalism has several pitfalls: excessive investment, picking the wrong winners, susceptibility to corru-ption, and difficulty withdrawing support when it is no longer appropriate. Oligarchic capitalism is oriented toward protecting and enriching a very narrow fraction of the popula-tion. Economic growth is not a central objective, and countries with this variety havr a great deal of inequality and corruption.

Big-firm capitalism, takes advantage of economies of scale. This type is important for mass production of products. Entrepr-eneurial capitalism produces breakthroughs like the automo-bile, telephone and computer. These innovations are usually the product of individuals and new firms. However, it takes big-firm and entrepreneurial capitalism seems best. This is the kind that characterizes the United States more than any other country.


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