Capitalism, as it is practiced in rich countries, has taken two brilliant ideas too far. The first is return on equity (ROE), one way of measuring value creation that has managed to eclipse many other, and broader, ones. The second is competition, which has come to be seen as an end in itself rather than as a tool for promoting growth and innovation.
Both ideas began as effective solutions to a pressing problem—how to allocate resources to produce, as Jeremy Bentham would have it, “the greatest good for the greatest number.” Centuries on, the advanced economies cling tightly to these approaches, but the problem has changed. The mismatch has caused difficulties of such urgency that many people are now declaring capitalism a failure. The whole system has been indicted, not only because of the financial crisis but particularly since that event, as inherently unworkable.