My new Project Syndicate column deals with the age-old battle between the liberal and mercantilist models of capitalism. While liberalism has won the intellectual fight, the real-world battle is still on, and is likely to shape the future of the world economy.
[I]t is more accurate to think of mercantilism as a different way to organize the relationship between the state and the economy – a vision that holds no less relevance today than it did in the eighteenth century. Mercantilist theorists such as Thomas Mun were in fact strong proponents of capitalism; they just propounded a different model than liberalism.
The liberal model views the state as necessarily predatory and the private sector as inherently rent-seeking. So it advocates a strict separation between the state and private business. Mercantilism, by contrast, offers a corporatist vision in which the state and private business are allies and cooperate in pursuit of common objectives, such as domestic economic growth or national power.
The mercantilist model can be derided as state capitalism or cronyism. But when it works, as it has so often in Asia, the model’s “government-business collaboration” or “pro-business state” quickly garners heavy praise. Lagging economies have not failed to notice that mercantilism can be their friend. Even in Britain, classical liberalism arrived only in the mid-nineteenth century – that is, after the country had become the world’s dominant industrial power.
Coincidentally, my good friends Daron Acemoglu and Jim Robinson pre-empted me by a couple of days with their own Project Syndicate piece on “state capitalism”:
state capitalism is not about efficient allocation of economic resources, but about maximizing political control over society and the economy. If state managers can grab all productive resources and control access to them, this maximizes control – even if it sacrifices economic efficiency.
As this excerpt makes clear, their take is complementary to (but also partially at odds with) mine. The two pieces make great companions and should be read together.