There are six types of capitalism: oligarchic capitalism, state-guided capitalism, corporate capitalism, entrepreneurial capitalism, laissez-faire capitalism, and welfare capitalism.
Capitalism describes any economic system that is based around the private ownership of capital. It’s usually associated with free enterprise and pro-business government policies. It is ideally meant to function as a free-market economy, in which everyone is free to compete against each other with the cheapest or highest quality products.
However, degrees of ‘free competition’ differ between various types of capitalism.
Six Types of Capitalism
1. Oligarchic Capitalism
Under oligarchic capitalism, a small group of elite capitalists (the oligarchs) have taken over not only the economic system but also the political system.
The term oligarchy refers to the ‘power of the few’, coming from the Greek language. It is the opposite of democracy, which is the ‘rule of the many’.
The oligarchs may be corrupt and will, in any case, use their power to prevent competition in the economy and in politics. This is because they have amassed the power to control who else can try to have access to capital.
The more capital the oligarchs have, the easier it is for them to gain even more.
Oligarchs use their existing wealth to buy off competitors or corrupt politicians. This helps them distort how the capitalist economy is supposed to function. Instead of a free market where the best company wins, it is a restricted one where only a few powerful people can compete.
There may be many reasons why some countries become oligarchic and others do not.
A key question is how actively the citizenry defends its rights against the wealthy elites. The more active a democratic citizenery, the less in danger of losing its freedom any population is.
Examples of Oligarchic Capitalism
Examples of oligarchic capitalism can be found all around the world.
Russia and Ukraine – Classic cases of oligarchic rule include such as Russia and Ukraine. In those countries, the end of Soviet communism allowed a small group of people to capture key parts of the post-Soviet economies.
United States (Potentially!) – The United States has often been argued to be sliding towards oligarchy. As large corporations such as Amazon or Walmart have ever more power over the economy and politics, they may be heralding a shift towards an oligarchic system.
2. State-guided Capitalism
Unlike oligarchic capitalism where the economy is controlled by a few private individuals for their private benefit, under state-guided capitalism the economy is mostly controlled by the state (the government).
State control may be either for the benefit of the country when a democratic government has decided that it needs to intervene in the economy to improve it, or it may be just another form of oligarchic control but with bureaucrats (state officials) instead.
Governments usually guide the economy through a mixture of regulations and direct economic activities.
Through regulation, the state sets the rules for private actors in the economy to follow. For example, environmental regulations are meant to prevent damage to the environment by setting minimum standards on pollution and other issues.
The forms of direct economic activity the state may engage in include state-owned firms and government agencies that manage economic production.
In many countries, critical infrastructure, such as airlines or railways, are operated by companies in which the state owns all or most of the stock. These may also simply be directly controlled government entities in which case they function more like the police or fire service.
State-guided capitalism is different to socialism. Under socialism, the government simply owns and controls all of the economy (which has pros and cons – see here). In this case, it is no longer a capitalistic system at all.
But under state-guided capitalism, private economic activity is still retained (and even central to the functioning of most of the economy).
Examples of State-Guided Capitalism
Examples of countries which have state-guided capitalism are everywhere. In fact, it could be argued that all countries are to some extent examples of it, as the modern economy always requires some form of regulation. Without such rules as health or safety regulations, societies end up with far more problems than without.
However, some states intervene much more in the economy than others.
China – A great example of a heavily interventionist state is China. The Chinese government owns firms that together account for 40% of the economy, though that proportion is falling. This gives the Chinese government even more power over their already tightly controlled society.
3. Corporate Capitalism
Corporate capitalism refers to an economic system where big companies (corporations) have a controlling position on the market. It is usually achieved through neoliberal policies.
Unlike state-guided capitalism, private interests have the most power, but unlike in oligarchic capitalism, these interests are institutional (run by legitimate companies), not personal (run by a small circle of elites).
Whereas oligarchs will be individual people with a lot of wealth, corporations are owned by their stockholders, who may be very diverse. A large corporation can therefore represent even thousands of individual investors, rather than just one or two people.
Nevertheless, there are many similarities between oligarchic and corporate capitalism.
In both cases, those with an advantage on the market due to their size will try to use their position to further their advantage ever further. We often refer to this as ‘anti-competitive behavior’.
Corporate capitalism is therefore also not a truly free market system.
Corporate capitalism may make the economy more efficient through what is known as an ‘economy of scale’. In this case, the large production capacity of a giant corporation enables a high degree of efficiency, cutting costs.
However, corporations can also be bad for the economy and society if they are able to rig the market for their benefit. They may be able to establish a monopoly on the market, which means that a company faces no competition and can raise its prices or drop its standards voluntarily.
Another issue arises if they are able to affect politics in a way that frees them from social responsibilities, such as paying decent wages or not damaging the environment. Sometimes we call collusion between corporations and governments ‘crony capitalism’.
Examples of Corporate Capitalism
Corporate capitalism can be argued to exist in many Western countries, where large corporations have achieved a dominant status on many sectors of the market.
Facebook – In the US Facebook dominates social media through its ownership of WhatsApp and Instagram, beyond just its namesake platform.
Toyota and Samsung – Japanese and South Korean giants such as Toyota Group or Samsung operate in a wide range of industries, far beyond the export products they are traditionally known for outside their home countries.
4. Entrepreneurial Capitalism
Entrepreneurial capitalism is based on the work of free market entrepreneurs. These will typically be small-scale businesses, perhaps composed of just one owner and a few employees.
When a capitalist system is dominated by a multitude of small businesses decreases chances of one company gaining unfair advantage (such as a monopoly).
On the other hand, it also means that the economy will not have the efficiency brought by large-scale production.
Entrepreneurial capitalism could be argued to be the purest form of capitalism. It was a capitalist system developed before industrialization brought factories and other forms of large-scale capital that allowed the formation of corporations.
It is also the closest to how economic theory describes ideal markets.
However, entrepreneurial capitalism can be hard to maintain, as inevitably some entrepreneurs will be more successful than others and will expand by buying the competition. This then leads to a process of ever bigger businesses, until corporate capitalism is reached.
Trying keep the capitalist economy purely entrepreneurial will on the other hand require massive intervention from the state, thereby leading towards state-guided capitalism.
It therefore might be that entrepreneurial capitalism is unlikely to exist for very long outside of economics textbooks.
5. Laissez-faire Capitalism
Laissez-faire (French for “let do”) capitalism is based on letting people do as much as they want, with minimal interference from the state. It is the complete absence of state intervention in the market.
The justification for this system is that it is the purest form of a free market. This, however, assumes that free markets emerge naturally without government intervention.
As the above section noted, however, it is in fact the case that over time there will be continuous consolidation of individual companies within the market. This then leads to the unfree markets of corporate capitalism.
There is therefore a paradox in laissez-faire capitalism in that the opposition to government intervention in the hopes of maintaining the competitive free market will eventually create the need for government intervention in order to preserve competitiveness within the market.
6. Welfare State Capitalism
The government plays a major role in welfare state capitalism. Unlike in state-guided capitalism, welfare state capitalism is based on using the state to redistribute some of the resources of the economy.
These resources usually include money, with people receiving unemployment benefits or support for raising children. It may, however, also include direct provision of services, such as healthcare and education.
In a welfare state capitalism system, the competitive private market continues to operate, but taxation is used to provide for people who have not succeeded within the market.
The welfare stat capitalist model is therefore different from the laissez-faire model in having a bigger role for the state in taxing and redistributing profits generated by the market.
Examples of Welfare State Capitalism
Sweden, Norway, and Finland – Classic examples of the welfare state can be found in the Nordic countries, such as Sweden or Finland. The nations have a long history of ensuring that everyone gets a fair share of the wealth generated by capitalism.
A stronger welfare state has also been proposed in other countries, for example by Bernie Sanders in the United States. However, enough people in the United States criticize the model for requiring high levels of taxation, which they feel is itself unfair, meaning it is not implemented at the same levels as most other developed nations.
Unlike what many people assume, capitalism is not a singular type of system. It can instead come in many varieties, each with its own strengths and weaknesses. Some achieve a more meritocratic social model than others.
The main types of capitalism listed here range from those with strong government power (state-guided capitalism) to those without (laissez-faire capitalism), and from those with powerful private interests (corporate capitalism) to those with decentralised markets (entrepreneurial capitalism).
When having arguments over whether capitalism works or not, it is good to ask people to specify which kind of capitalism they are talking about. Using the examples provided above, it will be much easier to have a productive discussion.
Dr. Chris Drew is the founder of the Helpful Professor. He holds a PhD in education and has published over 20 articles in scholarly journals. He is the former editor of the Journal of Learning Development in Higher Education. [Image Descriptor: Photo of Chris]