With the appeal of protectionism and government intervention on the rise, Swedish author Johan Norberg provides a stirring exposition of how free markets have underpinned human prosperity — and how they can continue to do so.
The Capitalist Manifesto: Why the Global Free Market Will Save the World (Atlantic Books £20) begins with a summation of how the global spread of capitalism after the fall of the Berlin Wall helped to reduce poverty by promoting the free flow of trade, capital, people and ideas across borders. “Even if China is removed from the 1990-2019 data set, global poverty has been reduced by almost two-thirds,” he explains.
Central to capitalism, according to Norberg, is its “Socratic wisdom” — or the notion that markets do not presume to know what is best, compared to say an all-powerful government choosing what to produce. In this way, the freedom of buyers to choose products across a competitive marketplace allocates resources more effectively, while profit motivates continual innovation. But Norberg is not solely focused on growth, he articulates how free markets can be a powerful force for justice and anti-discrimination too.
Many of the ills of capitalism, he argues, are due to market distortions introduced by regulation, like immigration restrictions, subsidies and tariffs. Sure, capitalism is certainly not flawless, but as rhetoric over introducing trade barriers, reshoring, and technology restrictions grows ever louder, Norberg’s latest book is a timely reminder of the benefits of free and open trade.
Now on to those flaws. The Big Four index funds of Vanguard, State Street, Fidelity and BlackRock control more than 20 per cent of the votes of S&P 500 companies. That alarming fact is at the core of John Coates’ book The Problem of Twelve: When a Few Financial Institutions Control Everything (Columbia Global Reports $17). Said problem arises when a small number of actors obtain considerable influence over the politics and economy of a nation.
Coates, a law professor at Harvard University, provides an expertly balanced explanation of how corporate concentration can arise when the forces of economies of scale in finance clash with a commitment to fragmented and limited political power. He illustrates this through the rise of index and private equity funds in the late 20th century, which have amassed and sustained enormous influence over the business strategies of corporate America. The challenge is what to do about it.
Coates acknowledges that the concentration of wealth and power is a threat to democracy, yet the political response to it can threaten the very financial institutions that also create vast economic benefits. A fascinating insight into a paradox at the heart of liberal democracies.
Financial markets are prone to bubbles when they get captured by mania, blind belief, and, sometimes, deception. Little exemplifies this better than the rise and fall of cryptocurrency. Easy Money: Cryptocurrency, Casino Capitalism, And The Golden Age of Fraud (Abrams Press $28/£19.99) by actor Ben McKenzie, with journalist Jacob Silverman, is the perfect guide to the recent bitcoin hysteria.
McKenzie, famous for his role in the drama The O.C., provides a gripping write-up of his personal journey to unveil what he considers to be the con underpinning the crypto world. From meetings with the CIA to an engrossing interview with Sam Bankman-Fried, McKenzie shows he is equally comfortable with economics and investigative journalism, as he is with Hollywood.
The global free market as we see it today has been shaped by economic crises since the 19th century. In Seven Crashes: The Economic Crises That Shaped Globalization (Yale University Press £20) Harold James, a history professor at Princeton University, provides a deep and insightful economic history of how major crashes and downturns — from the Great Depression to the Covid-19 crisis — have moulded the politics and academic thinking around globalisation.
James categorises “good” crises from “bad” ones. The former lead to greater expansion of free trade and capital, while the latter results in a less open world. He provides a neat analysis of how different types of shock drive different responses. Crashes driven by a supply shock, like the 1970s oil price hikes, tend to lead to greater globalisation, as businesses and nations react to raise supply, writes James. In contrast, demand-driven crashes such as the 2008 financial crisis result in a contraction of global markets. An important historic account to help us better understand the trajectory of the world economy.
Tej Parikh is the FT’s economics leader writer