Capitalism: East or West? (3)

Balance matters

In his 2020 book, “When more is not better: Overcoming America’s obsession with economic efficiency”, Roger Martin, emeritus professor of strategic management at the University of Toronto’s Rotman School of Management, describes an American capitalism that has become “out of balance”. Americans feel left out from the economy. They do not “feel that the economy worked for them.” Additionally, “people were decisively disengaged from politics.” These were the findings from a study Martin (2020) prefaced his book with to show how Western capitalism is becoming increasingly underwhelming.

As showed in the Eastern case, politics matter. And the whole essence of so-called “democratic capitalism” is the democratic component. But with people disillusioned with politics in the West, there is increasingly less democracy in the “democratic capitalism pudding.” The result? Increasing inequality, monopolies and an ineffective politics-business feedback mechanism. Big business could literally get any laws it wants passed through well-funded lobbyists. Politicians rely on donations from the business community to get and stay elected.

Thus, the very elements of Western capitalism that recommended it to many, its free markets, transparent politics, and effective justice system, are increasingly falling victim to the deep pockets of business and associated corruption. “What was once a sterling feature of the American experience, economic mobility in the land of opportunity, has ground to a halt. Strong improvement in mobility in the 1940s and 1950s gave way to slower improvement in the 1960s and 1970s, and to slight decreases since (Martin, 2020).” But does that suggest the Eastern version of capitalism is better?

Big business could literally get any laws it wants passed through well-funded lobbyists. Politicians rely on donations from the business community to get and stay elected

Martin (2020) argues that a preponderant focus on efficiency is largely responsible for the prevailing despondency with democratic capitalism in the United States. “Rather than striving singularly for ever more efficiency, we need to strive for balance between efficiency and a second feature: resilience (Martin, 2020).” According to Martin (2020), “a system is resilient to the extent that over time it can adjust to its changing context in ways that allows it to continue functioning and delivering its desired benefits (Martin, 2020).”

And in the past, America demonstrated remarkable resilience. “In the depths of the Great Depression, American democratic capitalism was resilient. It shifted, adjusted, and adapted to the shocks to its core, but it maintained the combination of those two features: democracy and capitalism. In many other developed countries, democratic capitalism was not sufficiently resilient to survive and was replaced by fascism or communism (Martin, 2020).”

So, what has changed? How did a system, which came out of the trauma of the Great Depression even stronger, transform to the current sorry state? Martin (2020) blames the prevailing view of the American economy as an efficient machine. “Pursuit of efficiency is definitively not a bad thing. The rise in the standard of living of the average family in America from the Revolutionary War to the present is substantially the result of much higher efficiency today compared with that of centuries ago. But there is ample evidence that the pursuit of efficiency just isn’t working as well now – and hasn’t been for almost half a century (Martin, 2020).”

To fix things, Martin (2020) suggests seeing the economy as a complex adaptive system instead. That is, one that is not left unhinged, where profit is not the only motive, and allows for a systematic periodic adaptation to the inevitable change of circumstances, factors, and constraints over time. Ordinarily, it would be assumed that the American capitalist system would be easily adaptable to changing circumstances.

After all, if a vibrant media keeps politicians on their toes, and errant public officials are replaced via the ballot box at regular intervals, and a meritocratic system ensures the best brains excel to the top, then the system should naturally evolve and correct itself as variables change, as they most surely do. And as Martin (2020) highlights, that was in fact the case in America once.

That has changed, however. For instance, legislations have become difficult to change once they become laws. Take Obamacare, which though loved by many Americans, was one legislation former President Barack Obama’s opponents in the Republican Party were determined to “repeal and replace” but have thus far failed to do (Martin, 2020). Knowing this, sponsors of self-interested legislations could milk the benefits for years before even the slightest possibility of a change.

Martin (2020) suggests a remedy to the dysfunction: “Retire the machine model of the economy and consciously adopt the model of the natural system” with the three core features of “complexity,” “adaptivity” and “systemic structure”.