… and capitalism does not exist

The find is not recent, it is from 1957, and whoever managed to determine it did not give it much importance. He was interested in how he could contribute to the growth of economies by finding the determinants. It was Robert Solow, who would be awarded the Nobel Prize in 1988 for his work on economic growth.

In 1956 he formulated the mathematical structure of the model and in 1957 he carried out an empirical exercise that allowed him to establish the behavior of the model’s parameters. He did it on the data of the North American economy between 1909 and 1949. Solow, through a crucial finding, determined that only 12.5% ​​of growth is explained by the increase in capital, and the remaining 87.5% of economic growth is explained by change technological, the so-called “Solow Residue” ..

We reconstruct the exercise with data from the last decades for the United States and several other countries: France, Japan, Korea, Ireland, Sweden. The conclusion is the same, what explains the growth is the technological change in values ​​that go from 70% to 95% for these countries. Therefore, it is not capital that explains the transformation of economies… capitalism does not exist, what does exist is an open system in which societies undertake, learn and innovate. What exists is the Schumpeterioan businessman society.

Jean Luis Blanc used the term “Capitalist” in 1850 to pejoratively describe business owners. The term had been used before, among others by David Ricardo in 1817 and Proudhon in 1840, Carl Marx used it not only in a pejorative way but also in a condemnatory way, making him guilty of a terrible crime, to appropriate the surplus value.

The myth of the exploiting businessman was created, useful for sowing hatred, but limiting to understand the generative role of the development and construction of the social fabric that the businessman has.

Open societies were left with the insult of being capitalists and assimilated it with a certain stoicism. But the statist closed society scheme was left with the curse of error and the tragic fate that has destroyed societies for decades. By wanting to end the “capitalist” businessman, what they have done is deprive society of its adaptive capacity to learn, to articulate innovations with capacities, and to generate interaction networks through which we all contribute to the common welfare.

Ironically and elegantly, the Solow equation explains why and how communist countries have lagged and even stopped in time. Cuba and Venezuela are a dramatic journey to stagnation and degradation.

In innovative societies, entrepreneurs are the natural heroes of these communities. In precariously stagnant societies, the entrepreneurs are more tied to inherited capital and concentrated in conventional activities. In them the myth of the “Capitalist” falls on fertile ground and becomes an ideological instrument that ends up disabling society.

This happens in Latin America, mired in basic specialization patterns. The objective of ECLAC and leftist ideas is to control the “capitalist” businessman and they have made the dynamics of innovation in the region impossible with three paths: high taxes that prevent new companies from being created or growing and reinventing existing ones, high operating costs with the heavy burdens of subsidies and tariffs, high financing costs due to country risk generated by inflation rates and decisions not to pay debts. There are myths that stagnate entire societies.

We wish to give thanks to the author of this article for this remarkable material

… and capitalism does not exist