Capitalism is an economic system dominated by free markets and private ownership of wealth, assets and business. Within the broad church of capitalism, there are different forms – from unregulated ‘Turbo-capitalism’ to ‘responsible or ‘social welfare capitalism.’ In practice, all ‘capitalist economies have a degree of government intervention.
This refers to an unregulated form of capitalism with financial deregulation, privatisation and lower tax on high earners.Turbo-capitalism involves:
- The absence of regulation for banking /finance system. This encourages banks to take risks and pursue profit through complex financial derivatives rather than basic principles of attracting deposits and lending.
- Less regulation on abuse of monopoly power.
- Lower income tax and lower capital gains tax giving greater rewards to high income earners.
- An unregulated labour market, where it is easy to hire and fire workers, and very limited regulation about working conditions.
The term ‘turbo capitalism’ was coined in 1989 by Edward Lattwak, a senior fellow at the Center for Strategic and International Studies, in his book “Turbo-Capitalism: Winners and Losers in the Global Economy“, (New York, 1999). It reflected on the changes to capitalist societies such as US and UK since 1980. The 1980s were a period of financial deregulation, privatisation and tax cuts for the wealthy. Arguably, this led to rising income inequality and also the financial deregulation played a key role in the unsustainable credit bubble of 2001-2007.
- Turbo capitalism could also be referred to as Unrestrained capitalism or free market capitalism
Responsible capitalism is essentially a free market economy, but with a degree of government regulation to avoid the excesses and inequalities of capitalism. Responsible capitalism would involve:
- An extensive welfare state to protect those who are unemployed or on low incomes.
- A progressive tax system with high earners paying a higher % of their income to fund government spending.
- Most industries would be in the private sector, but, the government might take responsibility for areas with substantial positive externalities and social benefits like health care, education, public transport.
- A willingness to regulate monopolies and protect rights of workers.
Responsible capitalism is similar to concepts of a social market economy
A term used to refer to the situation where business success is related to strategic influences with civil servants, politicians and those in authority. It could be used to refer to situations in early twentieth century US where business leaders had to buy off politicians in return for favours (e.g. in popular media: Citizen Kane). Arguably a degree of ‘crony capitalism occurs in countries like China, South Korea and Latin America. The power of the Mafia in Italy is also an example of ‘crony capitalism’
A term used to refer to societies where capitalism is firmly established. There is widespread acceptance of status quo, and little political activism over fundamental political issues. In advanced capitalism, consumerism is important. There is likely an established welfare state to overcome the worst of the excesses of capitalism.
State capitalism occurs when state owned industries play a key role within the market economy. Under state capitalism, the government also plays a key role in planning, for example deciding to invest in transport and communication. To some extent, China has become a model of state capitalism. Private firms play a key role, but the government also plays a key role in planning energy, transport and the Chinese government influences monetary policy and exchange rate policy. The difference between state capitalism and state socialism is that under state socialism there is no room for private enterprise and competition.
When hedge funds and private equity investors buy firms but they concentrate on making a personal profit rather than long-term well being of the firm. For example, they may buy the firm out with a leveraged buyout, saddle the company with debt and then sell off assets. Even if the company fails, the buyers profit from debt service and the sale of assets. Vulture capitalism.
The Conservative leader David Cameron spoke about his wish for ‘popular capitalism’. Presumably, this is to take benefits of capitalism but to make sure everyone benefits from economic growth. This would involve a degree of redistribution and guarantees of a certain social welfare safety net. Presumably, popular capitalism would be willing to impose greater regulation on the finance sector to prevent excessive risk-taking and growing inequality.
But, when politicians use such terms, there is always a degree of ‘vagueness’. As much as anything it is an attempt to appeal to a wider political audience. ‘Popular capitalism’ could really mean whatever you want it to.
Video on pros and cons of capitalism
11 thoughts on “Types of Capitalism”
Where do predatory capitalism belong in the image? Is it the same as Turbo Capitalism when it goes wrong, or a hybrid form of Turbo and Crony?
Yes, it combines elements of turbo and crony – Basically capitalists actively seeking to exploit through lower wages, higher prices
Tevjan – Interesting. Thank you.
Adam Smith’s real teaching, at least implicitly, is explained in the posts (notes to self) at jackhaffey.blogspot.com.
While the lifting necessary for a company, let alone an entire economy, to embrace this capitalism-done-right model/paradigm, at least Smith would endorse it. Altruism trumps greed as a long term value creation model.
It is avoided as “a bridge too far” for most, but is optimal.
Capitalism is antithetical to Democracy no matter what percentages of either you combine or how you combine them. They mix like oil and water and eventually, there will be grave issues with either ideology. (war, global hegemony, economic servitude, corrupt banking policies, crooked corporate and political associations and collutions etc..) Socialism is the only economic solution to this conundrum.
Socialism would only allow for a potentially corrupt government to strip the people of their power by making it so that they own everything, and control everybody’s lives. America is one of the few countries with freedom of speech, and no socialist country has the same amount of freedoms allowed to them. The moment that socialism is accepted in America is the day that America begins to lose the fundamental beliefs that it was built upon.
Sort of like what Trump is doing.
which form of capitalism is the most dominant in South Africa?
You’re absolutely right!
There’s a flaw in your model. You presented ‘Unregulated Capitalism’ as if it were the exact same thing as ‘Turbo Capitalism’. ‘TURBO capitalism’ actually refers to unregulated capitalism practiced in a society that lacks a shared morality. This lack of a shared morality can happen in the context of pluralism, scientism, atheism or combinations of them.
‘Unregulated capitalism’ literally means ‘freedom to trade as the people see fit’. It does not even imply the existence of money. It could all be barter. Think about it. ‘Freedom to trade as the people see fit’ means just that – FREEDOM.
What makes a society practicing unregulated (free) capitalism successful or unsuccessful is the MORALITY of the people who are practicing it.
Unregulated capitalism is neutral and does not, in your words above, “encourage” banks to take risks and pursue profit through complex financial derivatives. That kind of hoo-har only comes about when people practice capitalism in the absence of morality OR in a society where different groups are each following incompatible moral systems.
Capitalism works for human beings only where the society is made up of a majority of people who believe in and actually practice a shared understanding of what constitutes a decent human being (eg, HONOUR, KINDNESS, COMPASSION, TRUTHFULNESS, RESPONSIBILITY and DEPENDABILITY).
The society must have a SHARED understanding of right and wrong. This must be passed on to children from a very young age. What they are taught must match what they see.
‘Free’ capitalism (what this article incorrectly calls ‘Turbo’ capitalism) is humanity in its natural state – freedom to barter the fruits of the earth – think of desert tribes, groups of people living in forests, mountains, islands, or agricultural communities such as in Laura Ingalls Wilder and Wagons West in early US pioneer history.
That’s my concern about this article. It is very misleading
Why can’t you call a spade and spade and add ‘Shared Morality Capitalism’ to the list? A free market where everyone is on the same page about what constitutes right and wrong, you have the rule of law, separation between church and state, and government is as small, and free from ideology, as possible.
I had a few more;
VAMPIRE CAPITALISM: Buying a company purely to sell its assets & property holdings.
PARASITE CAPITALISM: The rich use Charities to fleece gullible people,
VULTURE CAPITALISM: When hedge funds and private equity investors buy firms but concentrate on making fast personal profit before bankruptcy.
CRONY CAPITALISM: A situation where business success is related to friendships with people in high places of authority.. Civil servants, politicians etc.
OLIGARTH CAPITALISM: Using hidden off shore tax assets to invest in “Space Travel”
LEECH CAPITALISM: Forcing Civil Servants to award Taxpayer funded Government or Council contracts with blackmail.
DEVELOPMENT CAPITALISM: To create a product nobody wants & then force it on the population through devious means.
BANKERS CAPITALISM: To use normal finance to gain a foothold in Companies & then force them into bankruptcy with high interest rates.
RIGGED CAPITALISM: Insider traders using rigged data to manipulate commodity & currency prices for personal profit.
PREDATORY CAPITALISM: Raising company profits from lower wages, higher selling prices
MORTGAGE CAPITALISM: Giving loans on property & never handing back the deeds.
PENSION CAPITALISM: Buying a company to steal its employees’ pension fund.