Four Types of Capitalism
In Good Capitalism, Bad Capitalism, William J. Baumol, Robert E. Litan, and Carl J. Schramm write (p.91),
Of the twenty-five largest firms in the United States in 1998, eight did not exist or were very small in 1960. In Europe, all twenty-five of the companies that were the largest in 1998 were already large in 1960.
The point is that capitalism is more entrepreneurial in the United States. For the authors (BLS), entrepreneurial means not just that you can start a mom-and-pop business, but that you can start a business that has the potential to overthrow a large incumbent.
Europe and Japan have systems that do much more to protect existing enterprises, lock in employment, and so forth. Banking is concentrated, and government has big influence on capital movements. The authors call this big-firm capitalism.
When government is even more involved with directing capital movements, the authors call it state-directed capitalism. They view China as an example. They prefer a combination of entrepreneurial capitalism and big-firm capitalism, but they believe that state-directed capitalism can work in the short run.
Finally, when only a few firms are given leeway to earn profits, the authors call this oligarchic capitalism. On p. 170, they defend Vladimir Putin, arguing that he is trying to move Russia from oligarchic capitalism to state-directed capitalism, which is a step forward.
It is interesting to compare the thesis of the book with the dichotomous view of North, Wallis, and Weingast. I think BLS have an easier time describing China, and they can differentiate Europe from the U.S. On the other hand, I think that NWW do a better job of explaining the link between oligarchic capitalism and oligarchic political systems. I think that Russia fits better with the NWW model of limited-access order than the BLS model of state-directed capitalism.
UPDATE: Kevin Hassett looks at countries that have economic freedom without political freedom.
the countries that are economically and politically free are underperforming the countries that are economically but not politically free. For example, unfree China had a growth rate of 9.5 percent from 2001 to 2005. But China was not the whole story–Malaysia’s GDP grew 9.5 percent from 1991 to 1995, Singapore’s GDP grew 6.4 percent from 1996 to 2000, and Russia’s grew 6.1 percent from 2001 to 2005.
Of course, my co-blogger would be happy to point out that there is no particular reason to expect democracies to have good economic policies.