Saturday, July 19, 2008

5 Types of Capitalism

A popular idea at present is that capitalism is only an economic system and that it can be separated from political systems. Using the example of China, many argue that capitalism does not need democracy in order to work.

Whether or not capitalism and democracy need each other would make a good topic for debate in a class. But in such a debate, one would need to make clear the meaning of terms, particularly "capitalism." It is always useful to remind students (and one's self) of the many overlapping forms of capitalism. I think Shaw and Barry's book (Moral Issues in Business, 10th edition) does a great service by demonstrating that there are several forms of capitalism and that there has been a specific historical development.

Here are Shaw and Barry's forms:

1. Mercantile Capitalism. Profit, a novel concept promoted by Hans Fugger ( about 1370, becomes an aim in itself. State aims to export goods and block imports in order to accumulate gold and promote national power. Mercantile capitalism later became the target of much criticism in Adam Smith's, The Wealth of Nations (1776).

2. Industrial Capitalism. During and after the Civil War. Mass production. Era of the Robber Barons (also called Captains of Industry) follows. Vanderbilt, Cyrus McCormick, Carnegie.

3. Financial Capitalism. Large corporations form, reducing prices and absorbing competition, using pools, trusts, and holding companies.

4. State-Welfare Capitalism. Invented after the great depression (1929-1938). State regulates economic activities in order to smooth out boom/bust cycles of unrestricted capitalism, and state provides social safety nets for workers.

It is tempting to think that each form of capitalism has simply replaced the prior form, and that everything is now is a type of state-welfare capitalism. But a more accurate description is that each of the four forms is still practiced to varying degrees. Some African nations, for example, embrace aspects of Mercantile Capitalism while the factories and "robber barons" of Industrial Capitalism are now appearing throughout the developing world.

What will be the next, or 5th, form of capitalism? In their book The Support Economy, Zuboff and Maxmin argue that industrial capitalism gave way to managerial capitalism, and the latter has succumbed to organizational narcissism (inward focus on structure and profits to the exclusion of social benefit and consumer choices), leaving the door open for a new form.

In my view (or call it worst nightmare), we may be witnessing the success of a form of "capitalism" in China, without individual liberties and rife with racism and nationalism -- something that may prove to be one of the worst turn of events in human history if it continues.

See more on this topic, including a response to comments about this post at



1 comment:

madranger said...

In describing China's up-and-coming form of Capitalism and the several unjust practices it brings with it, the writer described so much of the "American Stile".