2. The Failure of Neoliberalism and the Future of Capitalism

Since the 1980s, the world economy has been dominated by the neoliberal policy regime. This regime came into being on the claim that it will increase economic growth and stability. Unfortunately, the promise has not been fulfilled and the world has seen slower growth, higher inequality, and bigger and more frequent financial crises. The chapter argues that only a thorough reform can change this situation. Two groups of reform measures are crucial. One is the reform of the financial system in the rich countries in a way that reduces its excessive complexity and excessive capital mobility. Another is the reform of the global economic governance system that regulates international trade and investment in a way that allows the developing countries to use policies that are more suited to them, namely, policies that help them promote infant industries in ways similar to what the rich countries did in the earlier stages of their economic development.