The TIME at Davos Debate: Is Capitalism Working in the 21st Century?

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Bank of America chief executive officer Brian Moynihan attends the TIME debate on January 25, 2012 at the World Economic Forum (WEF) in the Swiss resort of Davos

During this year’s TIME at Davos debate, our international editor Jim Frederick posed some colossal questions: Is 20th century capitalism failing 21st century society? And if so, who’s responsible and what should we do to fix it?

I’d love to say the panelists squared away all the answers with a succinct five-point plan. But neither they nor the audience could agree on the problems posed by today’s brand of capitalism. Only one panelist, Bank of America CEO Brian Moynihan, seemed wedded to today’s disruptive form of capitalism. “The corrective form of capitalism is boom and bust,” he said. Other panelists offered up a wide array of responses on who’s to blame for the global economic malaise and the best cure.

On the first point of debate — whether corporations have too much power – discussion turned quickly to who’s to blame for rising inequality. The answers depended on vantage point. For the Western worker, said Sharan Burrow, General Secretary of the International Trade Union Confederation, greedy corporations were to blame. Big companies have kept too large a share of the profits gained from globalization, and they have used that financial muscle to deny workers their seat at the bargaining table on how to distribute wealth, said Burrow. The result, she said, has been rising inequality in the Western world and too little demand among the have-nots to fuel a global recovery.

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Not surprisingly, Alcatel-Lucent’s CEO Ben Verwaayen disagreed. To the worker in emerging markets, capitalism has lifted millions out of poverty and lowered wealth inequality. The culprit in today’s version of capitalism isn’t greedy corporations, he said. It’s decision-makers (or rather, non-decision-makers) in government. Western governments have waffled on solving their debt problems and put forth long lists of competing regulations to rein in corporations, which only serve to confuse and disable the economy’s job creators. Raghuram Rajan, professor of finance at the University of Chicago, put forth yet another explanation for the root causes of rising inequality: Worker skills haven’t kept up with technological innovation. As a result, the top 1% of workers, who have the skills the economy needs, are getting paid more.

Burrow raised a good point here, which is that not every job in the global economy can be that cutting edge. There are still plenty of blue-collar jobs being created in the world, which are equally necessary for economies to grow. The problem, according to Burrows, is that many of them are moving to emerging markets, where Western corporations gain from lower labor standards. And what’s more, governments often get away with weak social safety nets. Is an economic model that sustains itself by preying on the weak ultimately sustainable?

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It’s a question emerging markets like China, which faces rising political pressure from low-paid workers, are grappling with. To compensate, China has been forging ahead with its own brand of capitalism. As David M. Rubenstein of the Carlyle Group noted during the panel: “You now have two types of capitalism competing with one another. You have laissez-faire and state capitalism, which has been creating more jobs at a greater rate than we are in the West.” If the West doesn’t solve its debt problems and make government more efficient, the state capitalism model could prevail, he warned. And it won’t create “the kind of high paying jobs with retirement benefits that people in the West have come to want.”

But just how likely is state capitalism to prevail? According to Rajan, it will reach its limits because it doesn’t encourage innovation. The West, by contrast, “has that strength. It has large innovative corporations,” he said, but it has to encourage that innovation and use it to improve the capabilities of its workers. Otherwise, emerging markets will use their rising demand to pull the seeds of innovation into their orbit over the next decade, and the West will be left behind.

On the question of innovation, Jeff Jarvis, rabble-rouser for, voiced a salient point from the audience: No one on the panel had discussed the status of the world’s ‘disruptors,’ the people who think outside the status quo and overturn old, failing institutions. Disruptors, of course, tend to be young, and in many Western countries, it’s the youth which are suffering the most from high unemployment. And that brought the discussion back to education. If the way forward for capitalism depends on youthful disruptors, are we doing enough to encourage their rise?

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On this issue, the resident educator, Rajan, was unable to offer a solution: “We would like to do more, we should do more and hopefully we can do more. It’s clearly a central problem.” Solving this issue will require new ideas on worker re-training and ways of encouraging students to pursue the degrees our economy values the most. And it will also require willing and able investors — government or corporations or both — to make change happen. This was the only point on which all panelists agreed.


The idea that laissez-faire (neoliberal) capitalism is the only one entitled to exist, while state capitalism shouldn't, is highly misleading. This is another proof that the economic narrative of the past decades has been dominated by a neoliberal ideology which has seen state intervention and regulation as bad per se, without realizing that with a laissez-faire system the West has performed poorly compared with the "Golden Age" of Capitalism 1945-1970.

This new laissez-faire system is responsible for the fact that some countries, beginning with Japan, started to pursue a policy of state-driven export. Countries such as Japan, the Asian Tigers, China, and most recently even Germany, believe that the purpose of economic policy is to drive other countries into large trade deficits by flooding them with their goods. In this way, these countries don't develop their own internal market, they increase productivity but don't adjust wages to productivity and working hours. But this is a wrong kind of capitalism, because no country can run large trade deficits in the long run, so that the countries with trade surpluses basically destroy their customers. In the 1960, Western countries traded with each other, but they didn't aim at making their partners run budget deficits. 

Since laissez-faire countries regard tariff imports as a sin against capitalism, they let state capitalist countries flood them with goods. In the meantime, Western companies try to profit from this situation by outsourcing jobs in order to exploit workers, paying them less than they should be paid. 

This won't change as long as the West sticks to defending laissez-faire and to refusing give a basic regulation to the market. State capitalist countries must be forced to consume more, and import tariffs can be a means to achieve this. If tariffs are used to isolate one's own economy, they are bad. But if they are used to hinder countries to systematically run trade surpluses at the expense of other countries and of their own workers, they are legitimate. 

At the same time, we need financial regulation, an adjustment of wages to productivity and the protection of workers' rights. It is wrong to think that the economy will be better off if countries compete with each other in this way. It is wrong to think that the ultimate purpose of the economic policy should be to run trade surpluses and keep wages low in order to boost export and hinder imports, because this is what at last reduces global demand and creates great inequality.