THE FUTURE OF CAPITALISM
(Author :  LESTER C. THUROW)
Review by: Premchand Palety

Lester C. Thurow is a professor of economics and an important shaping voice in the creation of political platforms and national economic policy in the United States.

Thurow in this book predicts a major crisis for capitalism unless subjected to some changes.  The foundations of capitalism, he argues, are already shaking.  In two decades, capitalism lost 60 percent per of its momentum.  The growth rate of world economy has declined from 5 percent per year to 2 percent per year. In all of western Europe not one net job was created after 1973, real wages are declining.  In America 32 percent of all men 25-34 years of age earn less than the amount necessary to keep a family of four above poverty line.  Economic inequalities are increasing at an alarming rate.  In United States 64 percent of earning gains went to top 1 percent.

The book contends that the contradiction between technology and ideology is the cause for the crisis in capitalistic system.  Technology is making skills and knowledge the only source of sustainable strategic advantage.  For this willingness and ability to make long run social investments in skill, education, knowledge and infrastructure is required  whereas the capitalistic ideology abetted by the electronic media is moving towards a radical form of shortrun individual consumption maximization.  The values of hardwork, patient learning, a sense of responsibility to society and an inclination to save are essential if technology growth, investment in basic research, education and infrastructure has to retain its momentum.  The individuals are required to be less self centred.  The ideology of capitalism places individual self interest before everything else.  The electronic media is also generating ‘Non- thinking’ masses.  People tend to take shortcuts to success (which is making money) and the aim is maximum enjoyment (consumption). Driven by market forces, the media shows what sells and what sells is excitement and consumption, not patience and hardwork.

Decline of communist world, migration of people from poor to rich countries, technological shift to an era dominated by manmade brain power industries, the global economy where capital and goods have become highly mobile and a multipolar world has according to the author added to the problems of capitalistic economy.  This inspite of the intrinsic problems of capitalism visible at its birth (instability), rising inequality, a lumpen proletariat) still there waiting to be solved.  Social welfare measures and investment in R&D by capitalistic countries so far has been primarily a result of competition to the communist world.  With the competitor gone, the will by capitalistic system to invest in these areas is not there.  The welfare measures are now driven by the vote bank, which the author contends is counterproductive.  Like the pension scheme for the old in America.  Although the old are relatively well off, they are least taxed and receive unduly high pensions (draining out most of social security money).  Wheras there is no move to subsidies education of young.  Such direct income transfers welfare activities undertaken for political considerations drain out resources to consumption.  The author suggests that more taxes should be collected to finance skill-training programs.  The taxes should be collected with a system based on consumption rather than income, since the first exempts the investment activities that are central to capitalisms performance.  The author has however failed to highlight the role of the lenders lobby, the people behind the big financial institutions in the crisis faced by capitalism.  These are the people responsible to a great extent for draining the surplus generated in society to wasteful consumption.  This lobby with political clout pushes for high interest rates, low inflation and low taxes.  Policies pursued to keep inflation low slow down economic growth and create unemployment.  This lobby is also responsible for easy access to credit.  The credit card culture has accelerated the rate of consumption.  The author rightly suggests that the credit card should be replaced by debit card where money is paid in advance.  This will increase the saving rate without affecting the convenience of card.  Speculation is the most unproductive feature of capitalism but great accumulator of wealth for the lenders lobby.  They are now pushing for a union of nations with America assuming the role of monitor.  This will ensure free flow of capital.  No nation will be strong enough to resist the outflow of capital so essential for the game of speculation.  The author has strangely overlooked this game plan of the speculators lobby, which is detrimental to the overall progress of the developing countries.

The major achievement of the book lies in identifying the contradiction in capitalism, the mismatch between technology growth and ideology.  But the author is wrong in dismissing socialist ideology as having lost to capitalism.  Its wrong to compare command Stalinist economy (Russia) with capitalistic economy.  In Russia they did not combine market and planning but relied on administration command for planning.  They did not encourage creativity and independent thinking in economic planning (very unlike their space program).  Its unfortunate that the reforms in Russia could not be as successful as in China.

This book has nevertheless been most talked about in recent past and has been voted as one of the most intellectually stimulating by business week.