Ruchir Sharma’s What Went Wrong with Capitalism is a provocative and timely analysis of the malaise afflicting modern capitalist economies, particularly in the United States and other advanced nations. Sharma, a seasoned investor and financial journalist, challenges conventional wisdom from both the left and right, arguing that the true cause of capitalism’s current woes is the relentless expansion of government intervention over the past century. This intervention, he contends, has fundamentally distorted the mechanisms of free markets, stoked inequality, and undermined the promise of economic dynamism and social mobility15.
Sharma’s central argument is that “capitalism didn’t fail, it was ruined”1. He asserts that the problems commonly attributed to market failures—such as rising inequality, the proliferation of monopolies, and sluggish economic growth—are in fact the results of excessive government intervention, not the inherent flaws of capitalism itself25. This intervention has manifested in three main ways:
Expanding Government Spending and Regulation: Over the past century, government spending has ballooned from less than 4% of U.S. GDP in 1930 to over 24% today (and even higher if state and local spending is included)45. This growth has not been reversed by supposed eras of deregulation, such as the Reagan-Thatcher years, which Sharma argues are more myth than reality4.
Bailouts and “Socialized Risk”: The state now provides guarantees and safety nets at every level—welfare for the poor, entitlements for the middle class, and bailouts for the rich. This has created a culture of “socialism for the rich,” where risk is privatized but losses are socialized, encouraging reckless behavior among corporations and investors15.
Loose Monetary Policy and Debt Addiction: Central banks and governments have pumped unprecedented amounts of money into the economy, fostering asset bubbles, misallocation of capital, and a dependence on borrowing rather than productive investment. Even the return of inflation has not ended this addiction to easy money5.
Sharma’s analysis is rooted in a historical narrative. He traces the shift from the 19th-century ideal of limited government—championed by figures like Thomas Jefferson—to the modern era of activist states and central banks. The Great Depression, World War II, and the rise of Keynesian economics marked turning points, leading to a consensus that government must actively manage the economy to prevent hardship and instability5.
However, Sharma argues that this shift has gone too far. The reflex of governments has changed from doing too little to doing too much, attempting to shield everyone from economic pain. This has led to a persistent expansion of the state’s role in economic life, with unintended consequences for growth, competition, and fairness15.
Sharma meticulously documents the consequences of this century-long expansion:
Rising Inequality: Contrary to the belief that government intervention reduces inequality, Sharma shows that the current system has concentrated wealth at the top. Bailouts and financial rescues disproportionately benefit the wealthy and large corporations, fueling the rise of monopolies and billionaires25.
Sluggish Productivity and Growth: The proliferation of “zombie” firms—companies kept alive by cheap credit and government support—has sapped the dynamism of capitalism. With capital misallocated and competition weakened, productivity growth has slowed, shrinking the economic pie for everyone35.
Ballooning Debt: Governments have increasingly relied on borrowing to finance their promises, leading to unsustainable levels of public debt. Sharma draws a parallel to household finances, warning that persistent deficits are ultimately unsustainable and threaten economic stability25.
Popular Disillusionment: Voters across the political spectrum are disillusioned with capitalism, but Sharma argues that what they are experiencing is not true capitalism, but a distorted version warped by constant intervention and bailouts6.
A key insight of Sharma’s book is his critique of the widely held belief that the 1980s marked a return to small government and laissez-faire economics. He demonstrates that, in reality, government spending and intervention continued to rise, albeit with a shift in how they were financed—from taxation to borrowing45. The so-called neoliberal revolution, Sharma argues, was largely rhetorical; the era of small government never truly arrived4.
While Sharma’s primary focus is on the United States and other advanced economies, he briefly examines cases where capitalism appears to function more effectively. He notes that even in quasi-socialist countries like those in Scandinavia, government interventions are often more targeted and less distortionary than in the U.S.25. He also highlights countries like Vietnam, where market reforms have delivered rapid growth, as evidence that capitalism can still deliver prosperity when allowed to operate with fewer distortions5.
Sharma’s analysis is notable for its even-handed critique of both progressive and conservative approaches:
Progressives are right to decry “socialism for the rich,” but their solution—more government intervention—would only exacerbate the problem.
Conservatives have often paid lip service to small government while presiding over rising deficits and expanding state intervention, particularly in the form of corporate welfare and financial rescues25.
He argues that both sides are now united in support of bigger government, whether to address climate change, boost manufacturing, or compete with China and Russia. This bipartisan consensus, Sharma warns, risks doubling down on the very policies that have undermined capitalism5.
Sharma concludes with a call to restore the balance between state support and economic freedom. He argues that the first step to a cure is a correct diagnosis: recognizing that capitalism has been warped by constant government intervention and the relentless spread of a bailout culture15. His proposed solutions include:
Reducing Government Guarantees: Scaling back bailouts and safety nets that encourage reckless risk-taking and distort market discipline.
Reining in Debt and Deficits: Returning to more sustainable fiscal policies, with less reliance on borrowing and more emphasis on productive investment.
Reviving Competition: Breaking up monopolies and reducing barriers to entry to restore the dynamism of free markets.
Limiting Central Bank Activism: Curbing the tendency of central banks to intervene in markets, allowing interest rates and asset prices to reflect real economic conditions5.
Sharma is cautiously optimistic, concluding that “capitalism is still humanity’s best hope for economic and social progress, but only if it is free to work”5.
What Went Wrong with Capitalism is important for several reasons:
Challenges Conventional Narratives: Sharma’s thesis disrupts both left-wing and right-wing narratives, offering a fresh perspective on the roots of capitalism’s current crisis125.
Historical Depth: By situating today’s problems in a century-long historical context, Sharma provides a nuanced understanding of how we arrived at the current impasse5.
Policy Relevance: The book’s analysis is highly relevant to ongoing debates about the role of government, fiscal responsibility, and the future of capitalism in an era of rising populism and geopolitical competition5.
Accessible Analysis: Sharma’s accessible style makes complex economic arguments understandable to a broad audience, bridging the gap between academic economics and public discourse5.
Ruchir Sharma’s What Went Wrong with Capitalism is a compelling diagnosis of the dysfunctions plaguing modern capitalist economies. By tracing these problems to the relentless expansion of government intervention—rather than to the inherent flaws of capitalism—Sharma invites readers to reconsider the path forward. His call for restoring the balance between state and market, curbing debt addiction, and reviving competition is both timely and urgent. For anyone seeking to understand the roots of today’s economic discontent and the prospects for renewal, Sharma’s book is an essential read125.