Capitalism for the 21st century

We live in a time when criticizing capitalism has become a national pastime. If you believe some journalists and activists we are living through “late-stage capitalism” when inequality has become so large that it will eventually lead to the decline and fall of capitalism as an organising principle of the economy. That this is complete nonsense can be seen by comparing current levels of inequality with past levels.

And let’s not forget that capitalism has lifted billions of people out of poverty over the last century. Activists may not like that but the reason why global extreme poverty rates have fallen as much as they have is rising globalisation and the ability of countries like China and India to participate in global markets to turn their economies into capitalist ones. In the history of mankind, nothing has created more wealth, health, and wellbeing than capitalism.

But capitalism isn’t perfect. And over the last few decades, rising inequality has been the result of an economic system (at least in the United States and to a lesser extent in Europe) that has gradually become less inclusive. Countries like Germany have long tried to reduce the negative effects of free market capitalism with the introduction of social safety nets and a form of cooperation and co-ownership of capital between entrepreneurs, managers, and workers. In Germany, by law, workers have to have representation on the board of every company above a certain size. And that doesn’t lead to these worker representatives constantly blocking progress or painful cost-cutting measures. It leads to a better understanding and increased cooperation amongst different stakeholders. Did you know that Germany has one of the lowest strike rates in the world?

Capitalism isn’t broken, but it can be improved and I am proud to announce that in my spare time, I was able to sit together with my friend Michael Falk of Focus Consulting Group and write a paper on how we think, capitalism can be improved and how it can be made to work for everyone. I won’t give away the content here because the paper, published with the CFA Institute Research Foundation and available for free here, is a short read. It will take you a mere 20 minutes to go through it and hopefully, it will give you some food for thought and some ideas about how capitalism can be improved and made even better. In particular, I like Michael’s ideas for Sovereign Wealth Funds and the role they can play to make capitalism more inclusive. 

We hope you will enjoy it.