23 Things They Don't Tell You About Capitalism

France had great success in promoting investment and technological innovation through indicative planning in the 1950s and 60s, thereby overtaking the British economy as Europe’s second industrial power. Other European countries, such as Finland, Norway and Austria, also successfully used indicative planning to upgrade their economies between the 1950s and the 1970s. The East Asian miracle economies of Japan, Korea and Taiwan used indicative planning too between the 1950s and the 1980s. This is not to say that all indicative planning exercises have been successful; in India, for example, it has not. Nevertheless, the European and East Asian examples show that planning in certain forms is not incompatible with capitalism and may even promote capitalist development very well.

Moreover, even when they do not explicitly plan the entire economy, even in an indicative way, governments in most capitalist economies make and implement plans for certain key activities, which can have economy-wide implications (see Thing 12).

Most capitalist governments plan and shape the future of some key industries through what is known as ‘sectoral industrial policy’. The European and East Asian countries which practised indicative planning all also practised active sectoral industrial policy. Even countries that have not practised indicative planning, such as Sweden and Germany, have practised sectoral industrial policy.

In most capitalist countries, the government owns, and often also operates, a sizeable chunk of the national economy through state-owned enterprises (SOEs). SOEs are frequently found in the key infrastructure sectors (e.g., railways, roads, ports, airports) or essential services (e.g., water, electricity, postal service), but also exist in manufacturing or finance (more stories about SOEs can be found in the chapter ‘Man Exploits Man’ of my book Bad Samaritans). The share of SOEs in national output could be as high as 20 per cent-plus, in the case of Singapore, or as low as 1 per cent, in the case of the US, but the international average is around 10 per cent. As the government plans the activities of SOEs, this means that a significant part of the average capitalist economy is directly planned. When we consider the fact that SOEs usually operate in sectors with disproportionate impacts on the rest of the economy, the indirect effect of planning through SOEs is even greater than what is suggested by the share of SOEs in national output.

Moreover, in all capitalist economies, the government plans the national technological future by funding a very high proportion (20–50 per cent) of research and development. Interestingly, the US is one of the most planned capitalist economies in this regard. Between the 1950s and the 1980s, the share of government funding in total R&D in the supposedly free-market US accounted for, depending on the year, between 47 per cent and 65 per cent, as against around 20 per cent in Japan and Korea and less than 40 per cent in several European countries (e.g., Belgium, Finland, Germany, Sweden).[1] The ratio has come down since the 1990s, as military R&D funding was reduced with the end of the Cold War. However, even so, the share of government in R&D in the US is still higher than in many other capitalist economies. It is notable that most of the industries where the US has an international technological lead are the industries that have been receiving major government R&D funding through military programmes (e.g., computers, semiconductors, aircraft) and health projects (e.g., pharmaceuticals, biotechnology).

Of course, since the 1980s the extent of government planning in most capitalist economies has declined, not least because of the rise of pro-market ideology during this period. Indicative planning has been phased out in most countries, including in the ones where it had been successful. In many, although not all, countries, privatization has resulted in a falling share of SOEs in national output and investment. The share of government funding in total R&D funding has also fallen in virtually all capitalist countries, although not by very much in most cases. However, I would argue, despite the relative decline of government planning in the recent period, there is still extensive, and increasing, planning in the capitalist economies. Why do I say that?

To plan or not to plan – that is not the question

Suppose that a new CEO arrived in a company and said: ‘I am a great believer in market forces. In this fast-changing world, we should not have a fixed strategy and should maintain maximum possible flexibility. So, from now on, everyone in this company is going to be guided by ever-changing market prices, and not by some rigid plan.’ What do you think would happen? Would his employees welcome a leader with a vision fit for the twenty-first century? Would the shareholders applaud his market-friendly approach and award him with a pay rise?