Capitalism and Democracy

Capitalism and Democracy

A Fragile Alliance

New Horizons in Institutional and Evolutionary Economics series

Theo C.M.J. van de Klundert

Capitalism is driven by technological revolutions, leading to alternating periods of regulation and deregulation in leading economies. Technologically backward countries face a different situation as they have to catch up with the leaders. Against this backdrop, Theo van de Klundert examines the relationship between capitalism and democracy, combining economic theory and historical description to analyse long-run economic development. Emphasis is placed on the interrelation between economic and political power, and a robust state-of-the-art overview of today’s political economy is presented.

Chapter 7: The world economy at large

Theo C.M.J. van de Klundert

Subjects: economics and finance, economic psychology, institutional economics, political economy

Extract

In the preceding chapter, we discussed the differences between the capitalist systems in Western countries. It is necessary to take a look at the world as a whole, in order to obtain a picture of future developments with respect to capitalism. The level of welfare highly differs across countries. A large inequality exists in terms of per capita GDP. The other side of the coin is the availability of a large potential for growth at the global level. For developing countries may grow at a high pace by imitation of technologies of the rich countries and by adjustment to these technologies. If such a catching-up process takes place, radical changes will occur on the world stage as the balance of power shifts, with major consequences for the cooperation at the global level. We will elaborate on these issues in the next chapter. If the catching-up of developing countries turns out to be disappointing, the question arises of how this can be explained. For some economists, a disappointing catching-up process is incomprehensible, as Steve Dowrick and J. Bradford DeLong (2003, p. 194) observe: ‘That the pattern of economic growth over the twentieth century is one of striking divergence is surprising to economists, for economists expect convergence’.

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