The Future of Market Capitalism
The responses to our questions were thoughtful and provocative. They fell into three groups. If we oversimplify a bit, the first group argued that market capitalism would continue to work its wonders if governments managed to stay out of the way. Poverty would be reduced by economic growth in the areas where labor was cheap. Or labor would flow to where opportunity was present. Inequality per se was not an issue.
The second group argued that "the market was always right," but that there were other institutions that influenced economic growth and the distribution of income and these often functioned poorly with costly consequences. In effect, they created market imperfections that prevented the self-correcting features of the market from working.
The third group valued the market but was far less impressed with its ability to deal with the costs associated with its workings. They pointed to the problems of Africa in contrast to the rise of India and China and wondered even if the political consequences of inequality could lead to war. They see effective democratic government as necessary to provide the proper context for markets to work their way — and some raised important questions about the role business leaders (and the business schools at which they study) might play in improving quality of public governance.
Our conversations with business leaders have led us to focus on the problems posed by inappropriate pricing — economists have long known and taught that markets will often mis-price social goods such as clean air and public health. Under such circumstances markets will buy too much of some things and too little of others. We were also impressed by business leaders' concerns that governments needed to provide the stable legal structure for markets to work. Markets aren't jungles. But leaders were less sure how they could help redress the weaknesses in national and international governance that they observed.
Joseph L. Bower
Baker Foundation Professor
Herman B. (Dutch) Leonard
Eliot I. Snider and Family Professor of Business Administration
HBS Working Knowledge, an online forum featuring new work from HBS faculty, offers more from Joseph L. Bower. And, if you like The Conversation, you may also enjoy What Do YOU Think?, an ongoing dialogue between Harvard Business School professor Jim Heskett and the readers of HBS Working Knowledge.