The Political Economy of Modern Capitalism

Abstract

This chapter revisits the debate on modern capitalism. While capitalism has many pitfalls, its unprecedented ability to create wealth through the invisible hand remains compelling. A missing piece in the discourse on the failure of capitalism and the ineffectiveness of regulations is that, while mainstream, neoliberal economic thinking puts a lot of trust in the ability of competitive markets to deliver efficient outcomes. The rise of the superstar firms has resulted in the birth of oligopolies in the private sector. This trend is exacerbated by the infusion of politics, which further weakens the purpose of a markets-based system, regarding helping guide incentives. Policymaking must reimagine the outcome of the interactive effects of markets with the digital economy as we seek ways to address the fundamental challenge of inclusive growth. To turn innovation from a paradigm to reality, the interplay of economics and politics is key.