Spotlight on Chapter 4 Growth, human development and planetary welfare
This excerpt from chapter 4 describes the main positive and negative narratives about capitalism and growth:
Capitalism has been credited with unprecedented economic growth, while at the same time it has also been severely critiqued for many ills in human society, including the biases in distribution of gains and rise in inequality among stakeholders.
Capitalism may be described as an economic system characterized by the ongoing accumulation of physical capital, growing labor productivity, growing capital/labor ratio and a stable real interest rate. There are two major narratives about contemporary capitalism: the first emphasizes the benefits, the second is concerned with the detrimental effects. Both have influenced current theories and debates on economic growth. This section provides an overview of these two narratives and then discusses the synthesis – or “third way”- proposals, which attempt to find pathways to move ahead, bringing together the positives of both narratives.
In the first narrative, economic growth is viewed as a process of liberation. Capitalism allowed for unprecedented economic growth which provided an abundance of material goods after centuries of life at the subsistence level for almost the entire population. It brought along dramatic improvements in life expectancy, health care, education and cultural development. As capitalism works best when individuals have rights and freedom, it spread these benefits to increasing numbers of people.
In the second narrative, economic growth is viewed as a process of alienation or exploitation. Capitalism’s success in efficiently providing goods and services for individual consumption created a mindset that tends to under estimate the negative externalities created, biasing distribution of gains towards owners and managers of resources and against other stakeholders such as workers; and creating uncompensated harm to nature while at the same time omitting long term sustainability concerns. When left unregulated capitalism can create exploitation, large inequalities and injustices and neglect common objectives like environmental quality.
The popularity of the narratives of capitalism as “liberation” and “exploitation” (Randazzo and Haidt, 2015) with different segments of society raised a concern about finding a more integrated perspective in order to forge a welfare enhancing and socially progressive pathway for economic growth. In recognition of this, third way approaches emerged to highlight the potential of capitalism (and its limitations) in order to move the discussion forward. It was felt that such a broad theoretical framework would not only allow for an evaluation of the costs and benefits of capitalism but also provide pathways for the transformation of contemporary capitalism. The common idea is to maintain the driving forces of capitalism for innovation, cultural diversity and democratic institutions and to address inequality and social anomalies by suitable policies like redistribution, social inclusion and protecting the interests of society through the regulation of economic activity.