Magazine article The International Economy

Mastering Capitalism in the Digital Economy: Top Tech Investor Bill Janeway Updates His Poweiful Book

Magazine article The International Economy

Mastering Capitalism in the Digital Economy: Top Tech Investor Bill Janeway Updates His Poweiful Book

Article excerpt

During the half-decade since Doing Capitalism first went to press, the Three-Player Game has continued to evolve, indeterminate and problematic as ever. This is the term I use to characterize the complex, reciprocal interactions between the state, financial capitalism, and the market economy. Out of this dynamic, successive technological revolutions have transformed the conditions of life over more than 200 years.

In the context of today's disruptions, it is essential to recognize that the Three-Player Game can have very different outcomes, as I wrote in the Introduction to the first edition:

From this dynamic and unstable configuration of political, economic,
and financial forces... has emerged a world in which state investment
in fundamental research induces financial speculation to fund
construction of transformational technological infrastructure, whose
exploitation, in turn, raises living standards for everyone dependent
on the productivity of the market economy. But the three-player game
is also responsible for a world in which bubbles and crashes in the
financial system spill over and liquidate both the employed and their
employers, generating appeals to the political process for redress and
relief. In yet another version, we find ourselves in a world where
"malefactors of great wealth"--to invoke Theodore Roosevelt's
epithet--are able to exploit the political process in order to
preserve and protect their exploitation of the market economy.

So two overlapping sets of institutions--markets and the political process-compete in the allocation of resources and the distribution of the income and wealth generated by their application. Those who win in one arena have the opportunity to assert their power in the other; contrariwise, the losers in one can seek redress through participation in the other. Of course, the potential that the losers in the market would use the political process to redistribute the market's outcomes motivated resistance to extension of the franchise for generations--centuries. But history records that the economically and financially powerful have had at least as much success in bending the political process to their advantage.

The structural fragility of the Three-Player Game was demonstrated during the 1930s. That fragility is again evident in the haphazard response to the second great globalization. And here lies a second irony. Globalization, both in the late nineteenth century and over the past generation, has been enabled by technological innovations that have radically reduced frictions in the cross-border movement of goods and services and people and capital. The same technologies--be they steamships and the telegraph or the internet in its commercial and social forms--that unequivocally increase the efficiency with which resources are allocated challenge the political system's ability to buffer the increased flows that they enable.

However, even while international trade and migration are targets of populist outrage, the primary engine of economic and social disruption is coming from within, from the maturation of the digital revolution that itself has been the result of the most productive collaboration in human history between state investment and financial speculation. Specifically, the decline in manufacturing jobs has continued at a rapid pace, from the United States to Germany, as the developed world continues to absorb the effects of China's fullbore entry into the world economy. But automation, not "bad trade deals," was responsible for the vast majority of job losses in manufacturing. And, beyond manufacturing, inequalities of income and wealth rebounded with the stock market after 2009, especially in the United States.

Failure of the state to play its post-World War II role in underwriting the demand side of the economy raises the need for critical review of its historic and strategic role in financing the scientific research that ultimately drives the supply side. …

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