Is Capitalism Headed For A New Dark Age?


How Today's Economic Forces Shape Tomorrow's World

By Lester C. Thurow

Morrow -- 385pp -- $25

A mere six years after the Berlin Wall fell, victorious capitalism seems to be in a funk. Japan's economy is stagnant, European unemployment is stuck in double digits, and in the U.S., a Presidential candidate is riding high by railing against a couple of pillars of the system: free trade and the unfettered pursuit of corporate profits. Simultaneously, a vigorous and brutal global capitalism has emerged, one that promises prosperity to the multitudes while forcing enfeebled governments to kowtow to its commands.

How to understand these seemingly contradictory developments? Massachusetts Institute of Technology economist Lester C. Thurow says all are manifestations of the dire struggle facing the market economy. In The Future of Capitalism, Thurow concedes that no other system provides such gobs of efficiency and technology. But with no guiding ideology other than avarice, these very strengths could become the system's undoing--it operates in and often contributes to a world of growing economic imbalances. Missing is a set of common goals and values that citizens could rally behind. The upshot: Thurow warns that we could be slowly sinking into a new dark age.

An overstatement? Let's hope so. But as Thurow takes us on this cheerless stroll past the perils confronting capitalism, he makes a convincing case that the marketplace lacks the magic to save the world from deep trouble. Other observers have covered much of this terrain: the challenges of sustaining a nation and maintaining wage levels in a global economy, worries about more frequent, ever deeper recessions, and the growth of intolerance and separatism. Thurow, to his credit, brings these problems into very sharp focus.

However, the MIT economist comes up short on solutions. He compares our plight to that of Christopher Columbus: We're off on a voyage across uncharted seas, bound for a land we don't know. He gives precious few tips on how to cross safely but plenty of details about the monsters we'll encounter en route.

Switching from Columbus, Thurow goes on to describe the economic scene in geological terms. Upon a bubbling magma of technological change, five new tectonic plates are crashing about, creating all sorts of economic convulsions. These plates are: the end of communism, the shift to brainpower industries, the growing power and wealth of old people, a global economy, and the decline of the U.S. as a dominant economic power. Add it all up, and you have a world bursting with uncertainty.

After capitalism triumphed in the late '80s, a host of countries, from Azerbaijan to Argentina, pushed themselves toward market economies. But this had the effect of flooding the world with unneeded low-skilled labor, prompting mass migrations, a fight for jobs, and growing support for such ultranationalists as France's Jean-Marie Le Pen, Russia's Vladimir Zhirinovsky, and U.S. Presidential candidate Pat Buchanan.

Without the bogeyman of communism to unite them, the capitalist countries, Thurow says, find themselves struggling to adapt to this world in flux. Many citizens see their incomes falling and gaps between rich and poor growing. And with Mexico as an object lesson, even rich countries put up with all sorts of pains, including ever higher unemployment, just to protect their currencies from the cruel whims of global markets.

Reading this book, you get the sense that countless invisible hands are pushing all of us off a cliff. "In some profound sense capitalistic values war with capitalism," he writes. "Capitalism will succeed or fail based on the investments it makes, yet it preaches a theology of consumption." Without the cold war to justify spending on infrastructure and education--exactly what the global economy demands--countries are in a squeeze. The bond markets stand ready to punish those that run deficits to make such investments, and voters, already suffering from falling incomes, won't tolerate tax hikes.

What's missing, Thurow says, is an ideology, a set of principles for which voters would be willing to make sacrifices. Thurow discusses other civilizations, including those of the Egyptians and the Romans, and shows how their focus on the community rather than the individual led to great public works. By contrast, 500 years ago, he says, the Chinese had the technology to lead the world but no uniting vision of where that technology should carry them. So the Chinese lost their way, much as the Europeans lost the momentum of Rome 1,000 years earlier. A similar decline could occur now, he says, as the ethnic and financial volcanoes smoking on the fringes of capitalism's turf erupt in the First World. He predicts, for example, that the trade imbalance between the U.S. and Asia--a major "fault line"--will provoke a global financial collapse similar to that of the 1930s.

The solutions? Again, that's where The Future of Capitalism falls short. Thurow shoehorns in some common suggestions along the way, warning, for example, that the U.S. government will have to slash entitlements to the affluent elderly, make a historic push for education, and limit Japanese imports. But those are mere footnotes in a jeremiad. Thurow seems resigned to the notion that capitalism will move to save itself only when the sinking status quo becomes intolerable.

    Before it's here, it's on the Bloomberg Terminal.