Commando capitalism a one cycle pony?

I have just started reading Acemoglu and Robinson on Why Nations Fail. It is an interesting book for many reasons, but one of the arguments the authors have explored that I find interesting is the notion that the commando capitalist economies that seem to be doing so well will ultimately fail. The argument has three parts. The first is essentially that growth in our society is Schumpeterian, that we need periods of creative destruction, and that is how capitalism grows:

The authors then note that the process of creative destruction always pits entrepreneurs against incumbents. The incumbents will behave as rent-seekers and seek legislation to protect their interests and hope that they can legislate away change. Entrepreneurs will power through and create new technologies, organizations and business models that disrupt the old.

And then finally Acemoglu and Robinson make the observation that in a commando economy the state will own the majority of the big companies, or be entwined with them. The will to see change, innovation and to encourage the engine of growth, creative destruction, declines radically with the investments you have in the incumbents.

Acemoglu & Robinson also point out that in commando economies a small elite will make these decisions, almost guaranteeing that there will be no real impetus to embrace disruption and destruction. Thus a commando economy can get one really good cycle, but that is about all. Certainly an interesting discussion, and a welcome counter-argument to the notion that commando capitalism is better than open and free markets. Let’s see what the evidence tells us in a couple of years. The book, however, is a great read.

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