In This Review

Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity
Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity
By William J. Baumol, Robert E. Litan, and Carl J. Schramm
Yale University Press, 2007, 336 pp.

The collapse of communism as an economic system has encouraged close scrutiny of the diverse versions of capitalism, particularly given the significant differences in performance among capitalist countries. In pursuit of their interest in economic growth, the authors distinguish four types of capitalism: entrepreneurial, big-firm, state-directed, and oligarchic. All function within market economies but with very different motivating forces and with significant differences in long-term economic growth. The authors favor a judicious combination of entrepreneurial and big-firm capitalism, such as is found in the United States. Entrepreneurship ensures growth-enhancing innovation, while large firms consolidate and distribute the innovations. They argue, furthermore, that government policy can promote entrepreneurial capitalism, and hence economic growth, by implementing suitable legal, tax, and institutional arrangements that reward entrepreneurship; making market entry (and exit) easy; discouraging unproductive rent seeking; and ensuring vigorous competition (including from imports), so that entrepreneurs cannot rest comfortably on their past successes. The book also offers a thorough nontechnical review of what we know, and what we do not know, about the sources of economic growth in modern market economies.