DP16515 Shrinking capitalism: Components of a new political economy paradigm

Author(s): Samuel Bowles, Wendy Carlin
Publication Date: September 2021
Keyword(s): Civil society, classical liberalism, Ethics, Inequality, Keynesian social democracy, neoliberalism, paradigm, Power, Principal-agent model
JEL(s): B1, D01, D02, D21, D31, D82, D86, D90, O31
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16515

The climate emergency, rising inequality, and pandemic diffusion have raised the question: for what purpose is capitalism fit? Implementing new policies and institutions to meet these challenges will require a realignment of political forces on a scale similar to that achieved by neoliberal policies and ideas over the past four decades. We suggest that a successful new paradigm must provide the basis of a dynamic and sustainable economy and be constituted by a synergistic set of ethical commitments, economic models, emblematic policies, and a new vernacular economics by which people understand and seek to improve their livelihoods and futures. We illustrate these four components by reference to the classical liberal, Keynesian-social democratic, and neoliberal paradigms. Using an expanded space for policies and institutions that integrates markets, states, and civil society, we propose elements of a new paradigm, including diminished space for capitalism and greater equality not only of economic endowments but also of dignity and voice.