Bruce R. Scott

Alternative Models of Capitalism

This book began from the descriptive perspective that capitalism and democracy are the two prevailing systems of governance the world over. Simple as that sounds, it masks the fact that the legacies of earlier, more centralized systems of governance remain.

Creating Capitalism in Europe, 1400–1820

Whereas the preceding chapters have focused on the theory of capitalism, the present chapter and those that immediately follow focus on the early history of capitalism. Why should a book devoted to putting forth a coherent, accurate conception of capitalism digress into a narrative of its origins? Such a switch is not a digression in the least.

The Transformation of US Capitalism and Democracy, 1965–2009

US capitalism in the period 1965–2009 drew on two distinct models: that of 1933–1980 and that of 1981–2009, and not just a single, gradually evolving model like that examined in Chap. 13. At the same time, the return to the laissez-faire regime after 1980 is only superficially based upon the familiar, but simpler, laissez-faire model of earlier times. The differences in the nature and extent of the deregulation in these two eras of US history have not been widely or deeply appreciated, and I aim to elucidate that difference in this chapter.

The Transformation of US Capitalism and Democracy, 1830–1937

This chapter examines the transformation of capitalism and democracy in the United States during a period in which private economic power rose to overwhelm the forces of democracy, until a political–constitutional showdown curtailed its ascendency. While the new technologies of the Industrial Revolution were immediately associated with the increase in private economic power, the legal empowerment of firms also played a major role in the development of US capitalism during this period, and perhaps almost as important a role in promoting the long-term development of the nation. This chapter will treat the Industrial Revolution as contextual background that helped induce, but by no means fully determine, system-wide changes. Important as the technological innovations were, they did not decide the nature of the institutional changes that would reshape capitalism or the economy in the United States or, indeed, in other countries.

The Washington Consensus

The ideas behind the “Washington Consensus” originated in the late 1970s at about the time that many developing countries began to ask policymakers in Washington for help in dealing with the effects of prolonged import substitution strategies: decreasing exports, crippling debt, runaway inflation, and bloated public sectors. By the mid-1980s, the policy prescriptions jelled, and in 1990 John Williamson identified a set of ten policies that “Washington” regarded as desirable. He coined the term “Washington Consensus” in a paper featured in a book of collected works on the economic situation of Latin America called Latin American Adjustment. By “Washington,” Williamson was referring to “the political Washington of Congress and senior members of the administration and the technocratic Washington of the international financial institutions, the economic agencies of the US government, the Federal Reserve Board, and the think tanks.” Thus, for Williamson, the term Washington Consensus was first and foremost a descriptive term. Like it or not, there was an implicit consensus in official Washington, and he had identified it and given it a name.

Italy as “One Country, Two Systems”

Italy, like Germany, was late to achieve political and economic unification, doing so only in 1860, and its incomes lagged behind those of its west European neighbors as recently as 1950. From a broad perspective, Italy serves as an example of how a unified country with relatively developed institutions can take advantage of the opportunities provided by a larger market to converge toward the income level of its richer partners.

Import Substitution as an Economic Strategy

Inward orientation, or import substitution as it is often called, is an economic strategy that aims to accelerate economic growth and industrialization by substituting domestic production for existing imports and by forestalling future imports as demand grows. In most countries, inward orientation has been an interventionist strategy that shifted incentives away from agriculture and toward industry. It can be achieved through altering relative prices, for example, by levying tariffs or imposing quotas to restrict external sources of industrial goods. Either form of intervention causes domestic prices of industrial goods to rise and creates additional incentives for domestic investment in manufacturing plant, equipment, and other inputs. Alternatively, inward orientation can be achieved through intervention in the domestic economy to reduce the prices received for agricultural produce and/or to subsidize production of industrial output.

Neo-Mercantilist or Enhanced Mobilization Strategies

In this chapter I examine what I call “enhanced mobilization” (EM) strategies for economic development. While this strategy has been relatively rarely practiced in the last century, in my view it has been the highest-performing strategy in terms of permitting a country to catch up with other countries that are more advanced. I use the term enhanced mobilization instead of two other names that may be more familiar, i.e., “export promotion” and “neo-mercantilism.” I prefer not to use these latter terms because the first term fails to fully capture the overall idea, and the second term carries some historic baggage that could be a distraction.

Capitalism and Democracy

In the course of the 20th century, capitalism and democracy became the prevailing models for problem solving in their respective spheres of activity, the economy and the polity.

The United States as “One Country, Two Systems”

From its inception as an independent country, the United States hosted two social systems, one that officially recognized slavery and one that did not. Delegates to the Constitutional Convention were unable to agree on the elimination of slavery, ultimately allowing it to persist by state discretion and thereby allowing its extension throughout the nation. Seventy years later, at the time of the Civil War, slavery was exclusive to the south. Two distinct social, political, and economic systems characterized a divided house: a more urbanized and rapidly industrializing north, based largely upon free labor, and a mostly rural, agricultural south, based in considerable measure on slavery.