Business: The Many Coats of Capitalism

Etymologically, "capitalism" implies no more than a system that stresses the accumulation and use of capital—and all forms of economic organization do that. Some free-enterprisers even shun the word because it was popularized by Karl Marx and other socialist thinkers as a name for a system that they were attacking, and it retains a pejorative flavor. Adam Smith never mentioned capitalism in any of his works; he preferred the term natural order.

Still, the essentials of capitalism are clear. The touchstone is private ownership of most industry. A necessary corollary is that most production and services are motivated by the drive for profit. That in turn implies a relatively free market—one in which entrepreneurs can enter any kind of business they wish, and private businessmen make most of their own decisions.

Capitalism is associated with a high degree of political and social freedom, but that is not a requisite; some economists argue that Nazi Germany was capitalist because most of its industry was privately owned. Yugoslavia, on the other hand, is still outside the capitalist camp because most of its industries are state-owned, even though they compete in a market economy.

Other countries vary widely, from relatively straightforward capitalism, as in Singapore, Canada and Argentina, through mixed economies where the government owns only key industries (oil in Indonesia), to nearly total government control of business, as in Cuba, Algeria and Hungary.

In the industrial world, capitalist countries differ strikingly:

AMERICAN-GERMAN. This is the most purely capitalist system. Production is managed for private profit by businessmen, who can operate as they please so long as they obey the many regulatory laws. Government with rare exceptions directly runs only the most essential services (defense, education, post office) and tries to prod the economy in a desired direction by tax, spending and money-supply policies.

ANGLO-FRENCH-ITALIAN. While most production is in private hands, the government owns or operates key companies or industries: in Britain, coal and most steel; in France, the leading auto company and many oil refineries. Some governments, like France's, also draw up national economic plans setting broad production targets for key industrial sectors and attempting to channel investment into the most desirable areas. This is done by persuasion and tax and lending policy rather than by direct orders.

SCANDINAVIAN. This system could be called either welfare capitalism or free enterprise socialism. For example, about 90% of Swedish production is carried on by private corporations, a proportion as high as in the U.S. But profits and incomes are taxed at rates of up to 80% to support the capitalist world's widest array of social services. Wages are set by a "national bargain" reached through negotiations between employer associations and unions and ratified by the government.