The Future of The Market Capitalism

In October 2008, University Professor Summers (Harvard University) held an interesting keynote about the → future of market capitalism on the Centennial Global Business Summit of the Harvard Business School.

I will use this keynote to recapture, what is currently happening in the world economy.

Key Note Summarized

According to Summers, the United States, and the world economy are at current facing several key issues, which need to be resolved. The key takeaways from his speech are as follows:

Mayor economic changes

At current the United States faces a number of vicious cycles that remind everybody that market systems are not always self-stabilizing. In addition to these challenges, the current US faces a lack in faith in its leaders and managers. 

He thinks that – after a time of crisis prevention – the US will face in mid term the need to stabilize both, its economic system, and its financial system. In particular he states that a financial system, which guaranteed prosperity for the last 20 years, but, which faced several severe financial crisis since then, is not working well enough.

He suggests changing the future regulation focus from individual institutions to the functioning of the entire market.

Issues beyond the Financial System

While managing the crisis, it is important to address other issues. The first issue is that it needs to be made sure that the economy maintains stable prosperity and economic growth, as growth is essential for many of our systems to function. 

He further mentions the need for a more equal distribution of income and wealth, and he forwards several statistical facts that show that the following development took place in the last years:

  • Widening gap between rich and poor people
  • Widening gap in the health status of favorable and less favorable citizens
  • High possibility that children from poor people will be the future poor adults (rigidity in the socioeconomic system)

He thinks that it is required to building a new global system that works for the citizens of all nations. As currently the US is neither politically admired any longer, nor seen as economically strong, a new partnership with other countries is required. 

He thinks that in these challenges lie the opportunity and the need, to redesign the economic system to a system, which serves the people. He sees the need to save the capitalism from itself.

Current Status, and open questions

Now, half a year after this speech, we have understood globally that the current crisis requires us to rethink fundamentally. The question is whether we have seen sufficient developments take place, which lead into the right direction.

If you go back to the descriptions of → Galbraith, it is becoming evident that the inequality in income and life-perspective is not a US topic alone, and that it is a problem.

For instance also in Germany, we were facing widening income gaps. On the other hand, a large income gap seems already have caused the crisis 1929. Is this gap already narrowing?

In Krugman’s analysis (→ Part 1, → Part 2), you read that the economic system is vulnerable, and might lead into economic crisis. What has been done to regulate this system?

What do you think?

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