Types of Capitalism

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.

types-of-capitalism

Turbo Capitalism

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

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

Crony Capitalism

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’

Advanced 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

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.

Popular 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.

Related

4 thoughts on “Types of Capitalism

  1. 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?

    1. Yes, it combines elements of turbo and crony – Basically capitalists actively seeking to exploit through lower wages, higher prices

  2. 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.

Leave a Reply

Your email address will not be published. Required fields are marked *