The great genius of capitalism—solving people’s problems—has, by necessity, a dark side: the solution to one person’s problem can create problems for someone else.
This is the age-old puzzle of political economy: how does an economic system resolve conflicts and distribute benefits? A fancy derivative product may help corporate treasurers solve their problem of managing corporate risk, and it might make bankers rich, but it might also create greater systemic risk for the financial system as a whole.
[…] It can be challenging to distinguish between problem-solving and problem-creating economic activity. And who has the moral right to decide?
[…] Many (though not all) government regulations are created to do just that—to encourage economic activity that solves problems and to discourage economic activity that creates them—thus fostering trust and cooperation in society. Businesspeople often complain about regulation—and indeed many regulations are poorly designed or unnecessary—but the reality is that solving capitalism’s problems requires the trust and cooperation that good regulation fosters. It is notable that the most prosperous economies in the world all mix regulation with free markets, while unregulated and anarchic economies are universally poor.
Authors: Eric Beinhocker, Nick Hanauer
Source: McKinsey Quarterly
Subjects: Capitalism, Economics