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Cutthroat Capitalism, Cuddly Capitalism, and Charter Schools

October 31, 2012

Eduardo Porter’s column in today’s business section of the NYTimes invites readers to choose the form of capitalism they want to have in the future… and suggests that we are where we are today because of choices WE made in the past.

In his column he cites a monograph by Daron Acemoglu of the Massachusetts Institute of Technology, James Robinson of Harvard and Thierry Verdier of the Paris School of Economics that contrasts the United States’ “cutthroat capitalism” with the “cuddly capitalism” of Scandinavia. Here’s a quote from the abstract of that monograph:

We show that, under plausible assumptions, the world equilibrium is asymmetric: some countries will opt for a type of “cutthroat” capitalism that generates greater inequality and more innovation and will become the technology leaders, while others will free-ride on the cutthroat incentives of the leaders and choose a more cuddly form of capitalism. Paradoxically, those with cuddly reward structures, though poorer, may have higher welfare than cutthroat capitalists; but in the world equilibrium, it is not a best response for the cutthroat capitalists to switch to a more cuddly form of capitalism. We also show that domestic constraints from social democratic parties or unions may be beneficial for a country because they prevent cutthroat capitalism domestically, instead inducing other countries to play this role.

As any political junkie can see, the highlighted phrases all sound like talking points from the Republican side of the aisle and the business community… while the underscored sections reflect the progressive point of view… which is to say not necessarily the view put forth by the democratic party.

It struck me in reading this article that the charter school business represents the cutthroat side of capitalism. Market based charter schools set in motion the “… relentless dynamics (that send) unheard-of profits toward the prosperous few while threatening the jobs and eroding the wages of the rest” (see earlier posts on the wages paid to CEOs of charter schools and low wages paid to teachers) and does nothing to address the high social costs we have incurred as a result of the cutthroat capitalism that dominates our overall economy.

Charter schools and technology could be combined to address the social ills outlined in Porter’s article, but only if the government had incentives on collaboration among agencies and provided funding for those agencies that could break the cycle of dependency. Unfortunately no one is advocating ANY form of cuddly, cooperative capitalism… only the competitive, cutthroat capitalism that our businesses assume is the ONLY way to move forward.

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