Welcome to the Center on Capitalism and Society

New ideas are the driving force on earth. The formation of a new commercial idea in a country, its development into a novel product, and the successful test of the product in the market constitute an innovation in the country’s economy. And such innovations, their frequency and power, drive a country’s economic performance – the productivity, employment and personal growth of its working-age population. Yet economists are only at the beginning of the task of understanding the process of innovation and what it takes for a country to master the process.

Virtually every advanced economy has generated an innovation or two and, in any era, some economies have innovated with high frequency, either because of special opportunities or special potential. A country that has a propensity to innovate more than some others in the identical or comparable situation is said to possess more economic dynamism. Similarly, a country’s economy may be more inclusive than that of some others. The question is: What makes economies dynamic and inclusive?

We know that, with the emergence of company law, corporate finance, investment banking and patent law in the 19th century, capitalist systems in Europe and North America became dynamic and highly so. A process evolved from the germ of an idea, typically someone in business, to an innovation in products or methods made use of. The process involved financiers with the technical expertise and business judgment to make a plausible selection of some of the new ideas for practical development; entrepreneurs with the spirit and the breadth required to realize the envisioned products; and managers or consumers knowledgeable and venturesome enough to try out new products. Private ownership was typical at every stage of the process. Laisser-faire – a free market of low taxes, tariffs and regulation – was not.

Now there is much variety in economic systems even where private wealth and private ownership of domestic capital remains predominant – from relatively capitalist to relatively corporatist, statist or state-capitalist. Regarding new commercial ideas, the relatively capitalist systems found in the United States, Canada and the United Kingdom are more inviting and more receptive – they appear to possess more dynamism – than the more corporatist systems found in much of continental Europe, parts of Southeast Asia and Latin America. Recent evidence suggests the reasons lie in different economic cultures as much as in different institutions.

For years, the Center on Capitalism and Society has been searching for the government policies, the institutions and the cultural attitudes that create economic dynamism and economic inclusion in a capitalist system. The Center was created to explain and draw policy recommendations on what makes capitalism dynamic and inclusive. The broad perspective of the Center’s members has provided a perfect environment for research on these issues.

But the capitalist system has also proved to be more prone to instability and economic exclusion. Thus, the work of the Center has also focused on how to maintain stability and create economic inclusion in such a system.

Since 2007, financial instability has impaired dynamism in the US economy and this has set the direction of the Center’s work. In 2007, the Center’s 4th Annual Conference began to look at factors negatively affecting the performance of the US economy, and to examine worrisome issues relating to financial regulation and financial innovation. In 2008, already in the midst of the global financial crisis, the Center’s 5th Annual Conference took place for the first time in an emerging market economy – Mexico City. That conference focused on what could Mexico and other Latin American countries do to boost their dynamism in light of the global financial crisis and to become more inclusive.

By focusing on how the financial sector can be restructured and regulated, the 6th Annual Conference focuses on how to build anew the foundations for a dynamic and inclusive economy. The big challenge in the coming months for the US government will be to restore function and reexamine the role played by the financial sector, and to regain the dynamism that the US economy has lost. The conference will be addressing questions such as:

Does the ensuing slump affect the social value of business innovating and the effectiveness of capitalism as a prime generator of business innovation? How might the U.S. financial sector be reshaped to reduce the instability of the U.S. economy without extinguishing its dynamism and its inclusion? Might the economy be reshaped so as to increase its dynamism and its inclusion, both of which appear to have waned over the past decade, without aggravating its instability?

Because of the focus of it work, the Center has a lot to contribute to the present debate about the causes of the crisis and the policy options to deal with it to reactivate the world economies. The crisis has affected rich and poor countries, large and small, oil exporters and oil importers, industrial and agricultural countries in different ways, but the challenge of all is the same: to find or restore a dynamic path supported by a stable and effective financial sector, with as much inclusion as possible to ensure that the path is sustainable over time.

No reliable analysis can take place without grasping at the outset that any fruitful study of the dynamism, inclusivism and instability of the capitalism requires an alternative economics. The pretense common to neoclassical and latter-day neo-neoclassical economics – that the economic future is basically predictable, a certain randomness aside, and the way the economy works fundamentally known – is simply not reliable enough to be pursued in a world that is innovative. The alternative must be an economics that sees the innovativeness of the world’s capitalist systems (at any rate the somewhat well-functioning ones) as important creators of the future while recognizing that what will come of present-day innovations is unknowable and what future innovations will be even more unknowable. Similarly, a fruitful concept of human experience and a rewarding life – “welfare economics” – must be expanded to embrace the centrality of work, in particular, the mental stimulation, problem-solving, imagination and exploration that work can offer. We at the Center believe that considerable progress in this project is do-able.