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So how do we do that? Two essential ingredients: First, we need more innovation and more productivity growth in the industrial world. That means giving entrepreneurs the right to go out and innovate, to create new companies and so on. We have to make sure we don't destroy that environment. Second, we have to improve the capability of the workforce for the kinds of jobs that will be created when we have this innovation. There I think a partnership between government, industry and labor is extremely important. This is something that we've neglected, especially in the U.S., where capabilities are falling behind tremendously. But if you put these two together innovation and a more capable workforce you have a chance of reducing inequality by leveling up rather than reducing inequality by leveling down, which would be detrimental to longer-term growth.
Is Laissez-Faire finished?
Could a new form of capitalism from emerging markets like China take the place of Western-style capitalism?
RUBENSTEIN: It's unclear which model will prevail. Right now there seems to be a view that the state-capitalism model creates more jobs. They may not be high-paying jobs, they may not be the jobs that many people in the West would like to have, but they seem to be able to create jobs at a greater rate than we are in the West. What we have to do in the West is solve our debt problems and our entitlement problems and make our government much more efficient.
If we don't do that, the state-capitalism model will prevail, and while that is probably good in some respects for people living there compared with what they had before, it is not going to create the kind of high-paying jobs with the kind of retirement security that people in the West have come to want.
VERWAAYEN: The essence of any form of capitalism is the consumer. There's a free choice. But consumers aren't consistent. The consumer goes to the grocery shop and buys globalization. Then with his two bags full of globalization, he turns around to the shop, i.e., the government, and says, "Protect me against the results of this." The uncomfortable truth is that, yes, we have pockets of disillusion and unfulfilled promises that we have to deal with because there are so many new consumers on the market now that are getting their rights and their day in court. But it isn't all doom and gloom. If you go to Brazil or India today and talk about where the world is, you get a very different view.
RAJAN: State capitalism has national limits. It is very good for catch-up growth. It works well when the innovation is already out there and you can, as an economy, adopt it. But when you have to innovate yourself, large state-owned corporations are miserable at that. And that is where these state-capitalist models will reach their limits. Even in China today, the small and medium enterprises are contributing a lot to growth, and that is where we should see hope in the emerging markets. And that is where the West has its one significant strength. It already has large innovative corporations. But it has to make it possible for the innovation to take place.