Defining American Capitalism

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Defining American Capitalism

As we’ve explained previously, the economy is at the inflection point between the Installation phase and the Deployment phase of the Fifth Techno-Economic Revolution (Information Revolution) which began around 1971. A techno-economic revolution involves changing the basis of value creation and the institutions, resources, and conventional wisdom that supports it.

In the Installation phase, you start with the institutions, practices, and norms of the prior techno-economic paradigm. In the case of the Information Revolution, the Installation phase was premised on adapting the structure of the Automotive/Mass-Production Revolution to the needs of the “information economy.”

Initially, information technology primarily played either a supporting role (like ATMs or payroll systems) or was isolated in information-intensive “green-field businesses,” where many existing institutions were peripheral (think personal computers). However, the great opportunities for massive returns involve transforming well-established industries in ways that crash headlong into “fourth wave” institutions, regulations, and assumptions. Ideas about anti-trust, organized labor, affirmative action, environmental regulations, and financial institutions are often incompatible with emerging “best practices” for this new era.

The process and end-result of this adaptation depend significantly on the fundamental economic values that guide the process. That’s particularly true when it comes to defining the roles of business and government.

The full benefits of the Deployment phase will only be realized when and where these factors are most effectively transformed to meet the needs of the new paradigm. Ensuring that the great wealth-creating opportunity of the emerging Deployment phase is fully realized in the United States, depends crucially on making the right decisions now. To illustrate this point, consider the Second Techno-Economic Revolution based on railroads; it began in England, but delivered its greatest return in the United States. Similarly, the United States started and nurtured the Fifth Techno-Economic Revolution, but we can only be assured of continued leadership if we create the right environment.

In the Fourth Revolution, the New Deal delayed the transition to the Deployment phase, just as government policies of the past decade delayed the Deployment phase of the Fifth Revolution. Last time, it was only the command-and-control mechanisms implemented for winning World War II that forced the United States to optimize for the Mass Production Era.

Today, the great challenge comes in the form of global economic competition that threatens to undermine our standard of living...

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