Hi Guys,
Many years ago, Scott Adams, in his Dilbert cartoon series, identified two critical business management rules that I find perceptive. He noted: “There are two essential rules to management. One, the customer is always right, and two, they must be punished for their arrogance”.
This humorous insight is particularly applicable when assessing the relative merits of the European vision of capitalism against the American understanding and execution of it. The Europeans are arrogantly certain that they have discovered the secret, and have concluded that the Americans have it all wrong. As their current dire circumstances attest, the Europeans have been living on myths. Their interpretation of capitalism has failed. In reality, the Europeans have it mostly all wrong.
Economics is complex; it has many moving parts. Two guiding economic axioms argue that nothing happens in a vacuum, interactions always occur, and, unanticipated consequences take place. Feedback loops are both hard to identify and to quantify.
Capitalism comes in an endless array of flavors. To name a few of the more modern and famous varieties we have cowboy capitalism, crony capitalism, Crusoe capitalism, comfy capitalism, catch-up capitalism, and compassionate capitalism. Capitalism encompasses a broad spectrum of economic conceits and specific applications. The specific form of capitalism does matter since the associated policies are so disparate.
Earlier, the US practiced rather unconstrained laissez faire capitalism, complete cowboy capitalism. More recently, we have morphed into a cronyism capitalism as lobbyist have more strongly influenced politicians and politics. Across the Atlantic, much of Europe has gravitated to a more cozy capitalism, a comfy capitalism that promotes cradle to grave paternalism. Adam Smith would not approve of this policy; most likely, he would equally disapprove of crony capitalism also.
The distinctions between American-style capitalism and European-style capitalism are enormous; their separate historic outcomes tell a significant story. Integrated over time, the American reality demonstrates that it not only works, it works well for even those in the ever-changing bottom quintile of the population. The European version has generated more muted benefits, and in some instances a delusional myth supports it.
The social-democratic European style of capitalism is an emerging failure that becomes more evident with each passing day, with each passing crisis. At best, desperate lifelines are a temporary fix. Basic structural and personal attitude changes are needed. That’s not an easy task.
In the American-style cowboy capitalism, the rich indeed do get richer, but the poor get richer too. In the European-style comfy capitalism, redistribution is king, but the redistribution is often so distorted that the rich are taxed more, but the poor receive far less of the redistributed benefits than do the rich themselves. It is a faux redistribution.
To illustrate this judgment, consider the so called free education system as it is presently administered in Germany. In the US a far higher fraction of those in the lowest income quintile go to college than in Germany. In Germany, the free education is disproportionately exploited by the upper classes. In essence, this form of redistribution is heavily weighted to favor these upper classes. This is reverse redistribution in that the poor are disproportionate contributors to the tertiary education of the rich.
Much of these insights were reported in Olaf Gersemann’s successful 2004 book “Cowboy Capitalism”. The subtitle of the book is “European myths, American reality”. I recommend it.
Olaf Gersemann is a German economics writer. He concluded, after examining and summarizing much data, that the American dream is alive and well. In his book, he proposed that the European societies consider adopting some of America’s cowboy capitalism concepts.
All of this was written before the present European Union financial crisis. The US has persistently maintained an advantage over the European approach in mobility, in work flexibility and in entrepreneurial spirit. Our startup small business venture capitalists are encouraged by the open prerogative to both hire and fire without too much government intervention. Relative to our European friends, survey data shows that we remain more optimistic about our future economic prospects.
I too like our prospects.
In the end, it all devolves into what economists call a comparative advantage comparison. Pure American cowboy capitalism is superior to European comfy capitalism. Even today’s somewhat contaminated American crony capitalism generates better outcomes than European-style sluggish and inflexible cozy capitalism.
That’s the way I currently see the competitive economic playing field. My assessment did not incorporate political stability issues which further complicate the analyses between the US and European economic prospects. And remember that Europe has never been known for its speedy adjustments and/or maladjustments. The US reacts more quickly and more uniformly.
Sorry for all my verbiage, but it is a topic that has countless interactive components. I guess you fellows instinctively knew all of this from your investment experience. As H. L. Menchen once observed about Thorstein Veblen: “To say what might have been said on a postage stamp he took more than a page ….”. I frequently fall into that same undeniably attractive trap.
These are my simple opinions; your thoughts on this matter are welcomed to more fully explore this complex subject. Please contribute.
Best Regards.
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