They conflate capitalism with cronyism. The free market is efficient, sustainable, and just.

While the Great Reset is fundamentally a set of normative propositions—a call for large-scale political and corporate action in the service of broad, societal goals such as sustainability—it is based on underlying descriptive assumptions. The basic, and mostly unanalyzed, premise of the Great Reset is that the existing social organization of economic activities (imprecisely described as “neo-liberalism”) has proven unable to deal with “grand challenges.” These challenges include the Covid-19 pandemic (as well as future, as yet unknown pandemics), the alleged increase in worldwide inequality, the various climate challenges, and the supposed declining innovativeness of private business which translates into reduced ability to deal with the other challenges. In other words, the Great Reset thesis rests on a strong claim of what economists call “market failure” (mainly “externalities”; Bator, 1958; Zerbe & McCurdy, 1999).

Those who call for the Great Reset may not use this terminology. Instead, they criticize “capitalism” for causing inequality, making natural resources being too heavily exploited, failing to direct innovation in the best possible ways, ignoring sustainability concerns, and so on (World Economic Forum, 2020). Much of this critique lacks concreteness and is entirely “boilerplate.” In particular, it is rarely explained how exactly “capitalism” does all these things; all are common to all known forms of social organization. Economic activity is driven by human wants and needs and the ability of people to satisfy those wants and needs, given the constraints of scarcity, production, and knowledge. Capitalism is merely a way of dealing with these basic facts (although some may of course argue that capitalism creates “unnecessary” needs and wants). Many proponents of Great Reset thinking claim they are not against capitalism per se, just the forms of capitalism that are most common today.

Thus, the critique of capitalism is interspersed with the critique of neoliberalism which comes across as the politico-ideological superstructure to current capitalism. A recent short essay by a WEF associate announces the “end of neoliberalism” as policymakers need to act against increasing concentration of profits among a few industries, concentration of profits within industries (which, the author claims, are “hoarded” rather than invested), increased dispersion of wages within industries causing rising inequality, and increasing market power exercised by “platform companies” such as Alibaba (Buckup, 2017). All this sounds fairly damning and seems like a rehash of familiar Marxian themes. However, the author also tellingly notes that “as neoliberalism took hold, policymakers became less concerned about big firms converting profits into political influence, and instead worried that governments were protecting uncompetitive companies.”

2.2. Capitalism—properly understood

What these critics are describing here is not capitalism but “cronyism” (Rubin, 2016). As Klein et al. (2021) argue, confusing capitalism and cronyism is a long-standing mistake. Classic proponents of the free-enterprise system such as Schumpeter (1942)¸ Mises (1922), or Friedman (1962) describe capitalism as a mode of social organization which entails that (1) productive resources are (mostly) privately owned, (2) markets are used to allocate resources, products and services, (3) individuals and groups are (mostly) free to engage in economic activity without centralized control or interference from the state, and (4) institutions exist that enable (1) to (3), notably by making sure that property rights to resources are precisely delineated and enforced, which enables investments and make the costs of exchange relatively low (for qualifications, reservations, etc., see Klein et al., 2021). These are the “primitives” of capitalism as a system. Other oft-mentioned aspects (whether positive, negative, or purely descriptive), such as free movements of goods, capital, and labor across borders, are derived from these.

Critics of capitalism take for granted that capitalism is responsible for rampant pollution, increasing inequality, concentration of industries, and so on, but rarely engage in systematic, empirically grounded, comparative institutional analysis. Both theory and a careful study of the historical record suggest that non-capitalist systems experience these problems to a far greater degree than capitalist systems. For example, in a market economy, well-defined property rights can keep pollution and other sustainability issues under control (Rothbard, 1982); in contrast, the worst known cases of industrial pollution occurred in the twentieth century in the non-capitalist countries behind the Iron Curtain. Freedom of contract will secure dynamism and social mobility and thus counteract tendencies to concentration of industries and capital and increasing inequality (Dean and Geloso, 2021, Nikolaev and Bennett, 2016, Bennett & Nikolaev, 2016). Socialist economies, and capitalist economies characterized by a substantial degree of government intervention, experience stagnation and social strife.

The basic vision outlined by the above thinkers has been remarkably correct when applied to the economic history of the last two hundred years. Whenever capitalist principles have been applied they have tended to bring prosperity, education, improvements in health, and equality of opportunity (Leeson, 2010). The wealth generated by the operation of free markets provide the resources needed to deal with many environmental issues. Defining property rights to hitherto unowned resources, that is, pollution rights and making these tradeable has become an instrument of allocating such rights to their highest-valued uses and stimulate innovation in technologies that reduce CO2 emissions. Free markets and borders that are open to the movement of products and services enable the diffusion of such technologies. In short, free markets have increasingly been instrumental in dealing with ecological challenges. Among the various socio-economic systems, it is clear that “capitalism comes closest to meeting the conditions of efficiency and maximum well-being, even if no capitalist economies meet these conditions perfectly” (Klein et al., 2021).

2.3. Cronyism

What the critics essentially address and what calls for a Great Reset reflection are, as we see it, the aberrations of capitalist principles known as “cronyism.” Cronyism emerges because of voids in the institutional frameworks that support productive activities in a capitalist economy, and basically means that private actors pursue rents, not by competition in the marketplace but by exploiting political connections. Such rents may come in the form of monopoly rents from permits, licenses, legal protection and the like or targeted tax breaks, loans, grants, etc. that are available to some but not to others. Industrial planning and “winner-picking” easily devolves into cronyism. The means to achieve these advantages range from lobbying politicians and government officials to outright bribery.

Cronyism leads to many harmful consequences. Resources are invested in political competition rather than competing to satisfy customer wants. The dynamic market process which sorts among companies in terms of the ability to satisfy such wants is hampered, while politically favored firms thrive and grow at the expense of those without political connections. Favored incumbents have a strong incentive to further exploit their political connections to curb innovative entrants, foreign entry, or startups within their industries (Holmes et al., 2013, McMullen et al., 2008).

Cronyism has direct negative consequences in the form of distorted resource allocation, productive inefficiency, as well as long-term harms from suppressing new ideas, innovations, products, services, and processes and sending signals that the political process is unfair, unpredictable, non-transparent, and catering to the interests of a narrow elite. Alesina and Angeletos (2005: 913) argue that widespread cronyism makes people believe that wealth is mainly determined by corruption, discouraging entrepreneurial activity, reducing saving and investment, and thus reducing economic growth and government revenues. Cronyism is also associated with many of the negative social outcomes that are often highlighted by organizations such as WEF: cronyism has been linked to less effective protection of the natural environment (Duflo, Greenstone, Pande, & Ryan, 2013), negative health outcomes (Halleröd, Rothstein, Daoud, & Nandy, 2013), and lower-quality infrastructure. It should be clear that at least part of the critique of existing “neoliberal” capitalism isn’t a critique of capitalism per se but rather of cronyism.