Is there a difference between “cuddly capitalism” and “cutthroat capitalism”? If so, which one produces more innovation?
These may sound like completely academic questions that we can safely ignore but I think they set up a debate that’s about to become heated. Specifically, does America need to maintain cutthroat capitalism to save the world economy through innovation?
The debate began when three economics professors (from MIT, Harvard, and Paris School of Economics) published an article arguing that America’s cutthroat capitalism makes us a more innovative country. Further, our innovation is needed to lead the global economy. If we weren’t so innovative, the rest of the world would stagnate.
The article contrasts cutthroat capitalism to the “cuddly capitalism” found in the Nordic region. As the authors note, “Nordic societies have much stronger safety nets, more elaborate welfare states, and more egalitarian income distributions than the US.” The price – according to the authors – is a decline in innovation. The US is “widely viewed as a more innovative economy”.
Further, the cuddly capitalism of the Nordic region is essentially subsidized by the cutthroat capitalism of America. If it weren’t for American innovation, the Nordic regions wouldn’t have dynamic economies capable of supporting welfare states. If America tried to move toward cuddly capitalism, we would simply stall the world economy. Therefore, America needs to maintain and further develop cutthroat capitalism to save the world.
It’s an interesting argument and a fascinating article but is it true or is it just academic hot air? Essentially, the authors assert that the independent variable is the type of capitalism – cuddly or cutthroat. The dependent variable is the degree of innovation.
The article does a pretty good job of defining cuddly versus cutthroat capitalism. On the other hand, it never operationalizes the dependent variable, innovation. It merely asserts that the US is “widely viewed” as more innovative.
Is it true that America is more innovative than Nordic countries? I’m not so sure. Back in February, I wrote a post on geography and innovation based on Brookings Institute data. Brookings defines innovation more rigorously; it’s related to the number of patents filed. In terms of patents per capita, the league table reads (in order): Sweden, Finland, Switzerland, Israel, the Netherlands, Denmark, Germany, Japan, USA. America, the cutthroat capitalist, is in ninth place and well behind such cuddly capitalists as Sweden, Finland, and Denmark.
Of course, the number of patents is not the only indicator of innovation. Indeed, one of the slippery issues of innovation is that it’s very hard to operationalize. But using patents per capita as a proxy for innovation seems far better than assuming that America is more innovative simply because it is widely viewed to be more innovative. The authors present an interesting argument but they need a better definition of the dependent variable if they want to be taken seriously.