Technical components of capitalism, not capitalism have come of the rails - by Klaus Schwab

This year's World Economic Forum in Davos saw intense debate about the future of capitalism. Many participants were asking whether capitalism, with all of its excesses, still has a place in today's world. The media, meanwhile, speculated that if even managers and bankers were raising doubts about the system's future, then perhaps capitalism had already been laid to rest in Davos.

The reports about capitalism's imminent demise may be somewhat exaggerated, as the ideology of a free but socially committed and fairly regulated market economy was never questioned in Davos.

However, there was some discussion as to whether capitalism in its present form serves or undermines the free market economy. A clear distinction needs to be made in this regard between the ideology of a social market economy based on individual responsibility on the one hand, and the term capitalism as such on the other. Over the course of the past 200 years a range of different interpretations of capitalism have emerged as a reaction to industrialization. In historical terms, the transition from manual trades to machines required an ever increasing degree of investment, and therefore the provision of capital. In this sense, capitalism is not an ideology as such, but an applied theory of the creation and efficient deployment of capital as a factor of production. In its genuine sense, capitalism is therefore the component of an economic system that relates to the capital market, enshrined in the principles of a free market and guaranteed ownership. However, these principles are part of a more comprehensive ideology.

Unfortunately, in today's parlance this free market ideology has been equated with "capitalism" as a technical component. As a result, it is easy to gain the impression that the free market economic system founded on individual freedom and, at the same time, social responsibility, is to blame for the excesses of a capitalism that has lost its equilibrium. This is clearly incorrect. The subject of intense debate in Davos was not, therefore, the end of capitalism as an ideology, but the issue of how capitalism's technical components -- which have come off the rails -- can be reformed.

For more: Klaus Schwab: The End of Capitalism -- So What's Next?