Capitalism Requires a Balance Between All Stakeholders


From my perspective, the productivity gains have disproportionately benefited the top executives and suppliers of financial capital only in the more developed and capitalistic nations. In the U.S., companies have become very – even hyper – specialized in what they do allowing them to offer their products to customers on-demand. These products are integrated into their client’s business processes primarily through information technology. In contrast, many European – continental European – companies still like to keep most processes in-house. And, the further away from the economic center you go the more this is the case.

By my analysis, this evolution is the result of business creating legislation in each country. That is, the ease with which an entrepreneur can register and manage a legal entity. This includes not only company formation, registration, but capital requirements, access to capital, taxation, administrative red tape, social contributions, and so on. In the U.S. – and like-minded countries – where it is easy to create a company there are the highest productivity gains. In many European countries we see a net decline and so and so forth.

To substantiate this perspective, one only need see the results of austerity policies on economies where company formation is inhibited and the percentage of the population is unemployed. The process of creative destruction needs to be fully functioning in order to absorb all the jobs shed through labor market reforms. Many European countries have preferred high employment and wealth redistribution through taxation rather than allow more domestic competition thus preserving the interests of the status quo economic players and their political brethren. Thus, maintaining the appearance of a more equitable income distribution.

So, yes, productivity gains should benefit also the U.S. wage-earner but how to do that without an adverse impact on the process of creative destruction and the rags-to-riches myth so fundamental to the American Dream?

The above is a comment to a Wall Street Journal blog post For Capitalism to Work, Everyone Has to Think It’s a Fair Game, written by Karl Ulrich is vice dean of innovation and CIBC professor of entrepreneurship and e-commerce at the University of Pennsylvania’s Wharton School.