Nobel Laureate Phelps Speaks
There are two economic systems in the West. Several nations — including the U.S., Canada and the U.K. — have a private-ownership system marked by great openness to the implementation of new commercial ideas coming from entrepreneurs, and by a pluralism of views among the financiers who select the ideas to nurture by providing the capital and incentives necessary for their development.
…The other system — in Western Continental Europe — though also based on private ownership, has been modified by the introduction of institutions aimed at protecting the interests of “stakeholders” and “social partners.” The system’s institutions include big employer confederations, big unions and monopolistic banks…The system operates to discourage changes such as relocations and the entry of new firms, and its performance depends on established companies in cooperation with local and national banks…So different is this system that it has its own name: the “social market economy” in Germany, “social democracy” in France and “concertazione” in Italy.
…I conclude that capitalism is justified — normally by the expectable benefits to the lowest-paid workers but, failing that, by the injustice of depriving entrepreneurial types (as well as other creative people) of opportunities for their self-expression.
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I think that parts of the U.S. economy resemble Europe’s. In particular, insurance is so highly regulated that it lacks the dynamism of the rest of the economy. The Massachusetts health plan is an extreme example of a system that preserves private ownership but otherwise reflects socialism.